When his son Segismundo was born, King Basilio interpreted the horoscopes to mean that the boy would become a violent ruler, perhaps even killing his own father. Basilio therefore exiled the prince to a remote tower in the wilderness co be raised in isolation and educated by Clotaldo, a nobleman. Rosaura and Clarin stumble upon the tower and, for the first time in his life, Segismundo sees human beings from the outside world. Clotaldo captures Rosaura and Clarin, since their discovery threatens Basilio’s secret, and takes them before the King. Basilio, however, has already begun to have second thoughts. Maybe the stars were wrong. Perhaps free will is stronger than fate. Basilio orders that the prince be drugged and brought to court. When he awakens, he will be told he is the prince. If his behavior is good, he will remain and inherit the throne; if not, he will be sent back to the tower.

Clotaldo and the entourage welcome the dazed Segismundo to court and begin to entertain him. Clotaldo tries to explain how all this came about, but is immediately set upon by Segismundo for his past treatment. Astolfo, Segismundo’s cousin and pretender to the throne, introduces himself and is greeted coolly. Estrella, another ambitious cousin, appears; Segismundo ardently kisses her hand. A servant scolds Segismundo, who grabs him and hurls him off the balcony to his death. Basilio arrives and, for the first time, father and son meet face to face. Basilio admonishes, “Be humble, for perhaps you’re dreaming even while awake.” Segismundo ponders his situation and recognizes that he is a “man who is also a beast.” Clotaldo’s daughter Rosaura enters and Segismundo is immediately attracted co her. A fight ensues, first with Clotaldo, then with Astolfo. After Segismundo is subdued, Basilio appears once again. This climactic encounter between father and son leaves Segismundo spent and confused. The King orders Segismundo be returned to exile.

As Segismundo awakens he begins to doubt his ability to discern reality. His memories of the splendor of the court are vivid – but perhaps, as he is repeatedly told, it was all a dream. A rebel army forms and seeks out Segismundo at his tower, where they urge him to lead a revolt which will overthrow his father and give him the throne, in preference to rule by the foreigners Astolfo and Estrella. Segismundo eventually agrees to take on the fight. At the moment of his triumph, again unsure of his very existence, he relents. Basilio, interpreting Segismundo’s collapse as humility, declares him fit to rule. Segismundo renounces his love for Rosaura, who will wed Astolfo and proclaims his plan to marry Estrella for the sake of the social order – which may be only a dream.