In her hotel suite, Countess Adelaide von Waldner consults a Fortune-teller on the financial crisis in her family. As they examine the cards, Zdenka, the Waldners’ daughter (who has been brought up as a boy to save the expense of bringing up a second daughter), is kept busy warding off creditors. The Fortune-teller predicts a rich marriage for Arabella, elder daughter of the Waldners. Zdenka listens to the impassioned pleas of a young officer, Matteo, who begs Zdenka to assist him in his courtship of Arabella. He has received a letter from her but threatens to shoot himself if she ignores him again. Zdenka now muses on her own love for Matteo; it was she who sent the letter and signed her sister’s name. No sooner has he left than Arabella returns from a stroll to find gifts from three other suitors: Elemer, Dominik and Lamoral. She tells Zdenka that the right man for her will arrive and she will instantly know him. Although Zdenka is secretly in love with Matteo, she implores Arabella to favor him. Count Elemer arrives and invites Arabella to join him for a sleigh ride.

Count Waldner, disgusted with his bad luck at cards and with his many debts, tells his wife that he has sent a photograph of Arabella to a rich old friend and officer, Mandryka, who he feels will not fail him. A few moments later, a waiter announces a visitor, who turns out to be Mandryka’s nephew and heir with the same name. The young man has read Waldner’s letter, admired Arabella’s picture and journeyed to Vienna in his deceased uncle’s place to ask for the girl’s hand in marriage. He offers a few thousand-guilder notes to the astonished Count, and they go out together. Arabella reappears in a melancholy mood, meditating on her dissatisfaction with the three suitors. Her thoughts turn to the Coachmen’s Ball, which she will attend that evening, and she and Zdenka go off to their sleigh ride.

At the ball, Waldner introduces Mandryka to the Countess and to Arabella, who is overcome with emotion. Mandryka tells Arabella of his young wife who has died and describes his vast possessions in Slavonia. He also tells of the tradition of a girl pledging an engagement by presenting her beloved with a glass of water. Arabella and Mandryka exchange declarations of love; Count Waldner is delighted by news of the engagement. The coachmen’s noisy favorite, the Fiakermilli, enters, accompanied by her admirers, and names Arabella queen of the ball. Arabella bids a tender farewell to her suitors, but does not notice Matteo, who pleads desperately with Zdenka for some sign of Arabella’s professed love. Zdenka presses a key into his hand, telling him that it is from Arabella and that it is the key to her bedroom door. Mandryka, overhearing the conversation, is appalled. Furious, he flirts with the Fiakermilli and the Countess, until Waldner suggests that they all return to the hotel.

Unaware that Matteo has spent an hour in her room upstairs, Arabella returns from the ball in a radiant mood. Matteo, trying to make a discreet exit, is amazed to find Arabella in the lobby and cannot understand her cool cordiality, since he believes her to have been in his arms only moments before. Thinking Arabella to be faithless, Mandryka provokes Count Waldner into demanding satisfaction. Zdenka runs into the lobby in a flowing negligee and confesses that she has given herself to Matteo. She threatens suicide but is quickly forgiven by her parents. They give her hand in marriage to the now enraptured Matteo. Arabella thanks Zdenka for her selfless kindness and asks Mandryka to send his servant to her room with a glass of water. As Mandryka stands in the lobby, wondering what Arabella thinks of him, she reappears with the water glass. The lovers renew their pledge to each other.