Soldiers parade in the square. Micaëla arrives, looking for José. Moralès tells her that José is on the next watch. He tries to persuade her to wait with them, but Micaëla decides to return later. A crowd of street children appears, followed by the relief guard headed by Zuniga.

The square fills up with soldiers and women from the factory. Carmen attracts the most attention. Before returning to the factory, she throws a flower to José, which he picks up when everyone else has dispersed.

Micaëla returns and gives José the letter from his mother. Suddenly there is uproar in the factory and a crowd of women rushes out. They accuse Carmen of drawing a knife during a fight with another girl. Carmen refuses to answer Zuniga’s questions and he decides to send her to prison. While Zuniga is writing out the warrant, Carmen seduces José, who lets her escape.

Carmen and her friends, Frasquita and Mercédès, are entertaining Zuniga and Moralès. A crowd of soldiers arrives with the celebrated bullfighter Escamillo. He is instantly attracted to Carmen.

Carmen, Frasquita and Mercédès are left alone with Dancairo and Remendado, who have a plan for which they need the girls’ help. Frasquita and Mercédès are ready, but Carmen says she cannot join them because she has fallen in love with José and is expecting him.

José’s voice is heard in the distance. He declares his love for Carmen, who dances for him. When the roll-call sounds from the barracks, José is torn between his military duty and his feelings for Carmen. At the moment José decides to leave, Zuniga returns. José is fiercely jealous and starts a fight with his superior officer. Carmen’s associates return and deal with Zuniga. José realizes that his army career is over and he now has no choice but to join them.

Black-market smugglers come by night to the border. Carmen’s and José’s love affair has run its course: she has grown tired of him and he, though still obsessed with her, is tense and unpredictable. Frasquita and Mercédès hope to read their fortunes in a pack of cards; when Carmen cuts the cards, they foretell only her death. The women leave to decoy some customs guards, and José remains behind in the camp.

Micaëla and Escamillo converge on the deserted encampment, seeking José and Carmen respectively. Micaëla hides as José confronts and fights Escamillo. Carmen and the smugglers return and stop them, and Escamillo invites the whole party to his next bullfight.

Micaëla is discovered. She begs José to return to his dying mother.

A crowd has gathered for Escamillo’s bullfight. The toreros enter to enthusiastic acclaim; Carmen is with Escamillo. After Escamillo has entered the arena, Carmen meets José. She taunts him and he kills her.