A square In Seville. Townspeople and soldiers relax in the sun, while Micaëla searches for Don José. Children parade, imitating the soldiers. As the noon bell rings, girls from the cigarette factory come out to smoke. Carmen airs her philosophy of life: love is a wild bird that cannot be tamed. She tosses José a flower as the work bell rings. Micaëla returns to give José news of his mother, who has sent him a kiss, which she delivers shyly. A disturbance is heard in the factory; Carmen is involved in a fight. The girls run out, arguing over who started it. Zuniga orders José to arrest Carmen. Her wrists bound, she is left alone with José, singing “to herself” about “a certain officer” who has taken her fancy. José lets her escape in exchange for a promised rendezvous and is arrested for his negligence.

Lillas Pastia’s tavern. Carmen regales the customers with a gypsy song. The matador Escamillo arrives, and is immediately attracted to Carmen. Le Dancaïre and Le Remendado try to convince Frasquita, Mercédès, and Carmen to accompany them on their next smuggling trip. The girls are game, except for Carmen, who says she is in love with José and is awaiting his release from prison. The others laugh, then depart as José is heard approaching. Carmen sings and dances for him, but when a distant bugle sounds, he says he must return to the barracks. Carmen mocks him, saying he doesn’t love her, and he replies that he has kept the flower she threw. Zuniga breaks in, looking for Carmen, and José loses his temper, attacking him. José, now an outlaw, has no choice but to join Carmen’s gypsy band.

The smugglers’ hideout. The smugglers congratulate themselves on their successful trade, but José is unhappy. Carmen occupies herself reading fortunes in the cards, but foresees only death. The gypsies leave José as lookout, and Micaëla enters, frightened but determined to find him. She hides when José fires a warning shot at Escamillo, who has come looking for Carmen. The two men start to fight but are separated by the gypsies. Escamillo invites them all to his next bullfight and leaves. Remendado discovers Micaëla, who begs José to return home to his ailing mother. Carmen dismisses him willingly, but José, convinced she now loves Escamillo, vows to return after he has seen his mother.

Outside the bullring. The crowd gathers for the bullfight, hailing Escamillo. He and Carmen declare their love and he enters the ring. José begs Carmen to return to him, but she replies that everything is finished between them, as the crowd cheers the triumphant Escamillo. When Carmen tries to run past José into the arena, he stabs her.