It is 1911 and the contents of the Paris Opera House are being auctioned off. Present are the auctioneer, porters and bidders. Raoul, now seventy years old and in a wheelchair, buys a poster and a music box. As the auctioneer displays the Opera House chandelier, he explains that it is connected with the legend of The Phantom of the Opera. With a flash of light, the audience is flung back in time, when the Paris Opera was at its height.
We are thrust in the middle of a rehearsal for the opera Hannibal. Monsieur Lefèvre, the retiring manager of the Opera, is showing the new managers, Monsieurs Firmin and André, the great stage. As the prima donna, Carlotta, is singing, a backdrop falls to the floor, nearly killing her. The cry is raised, "It's The Phantom of the Opera!" Upset, Carlotta refuses to sing.
Meg Giry, daughter of the ballet mistress, Madame Giry, suggests her friend, Christine Daaé, take Carlotta's place. Christine has been taking lessons from a mysterious new teacher.
At her triumph in the Opera, is Raoul, a nobleman and patron of the Opera. Raoul recognizes Christine as a childhood friend. He comes backstage after the performance to escort her to dinner, but Christine tells him she cannot go, because her teacher, "The Angel of Music," is very strict.
When Raoul leaves Christine's room, the Phantom appears. Christine is lured into the bowels of the Opera House, where the Phantom will continue her lessons.
He leads her to his underground lair, where she sees a frightening vision of herself in a wedding gown. She faints, only to be awakened several hours later by the Phantom's music on the organ. Creeping up behind him, she rips off his mask. Horrified, he takes her back to the surface.
The Phantom has sent notes to both the managers of the Opera, as well as Raoul, Madame Giry and Carlotta, which give instructions that Christine will have the lead in the new opera, Il Muto. The manager's refuse to give in to the Phantom's demands.
Il Muto proceeds as planned, with Carlotta in the lead, and Christine in a secondary role. As promised, disaster strikes - the stage hand, Joseph Buquet, is killed, and Carlotta's voice is stolen.
In the confusion, Raoul and Christine escape to the roof of the Opera House. There, with all of Paris around them, they pledge their love to one another. They cannot see the Phantom overhearing their vows of love. Enraged at Christine's betrayal, the Phantom causes the final disaster of the night - the mighty chandelier comes crashing to the stage floor.
The second act opens at a grand Masquerade Ball, held on the steps of the Paris Opera. No one has heard from the Phantom in six months. Christine and Raoul are engaged, but are keeping it a secret; Christine keeps her engagement ring on a chain around her neck.
Suddenly, the Phantom appears, disguised as The Red Death, and delivers to the managers a score from his opera, Don Juan Triumphant.
At first, the managers refuse to perform the strange, disturbing opera. Then, with the help of Raoul, they devise a plan to trap the Phantom, using Christine as bait. Plans for Don Juan Triumphant, and the trap, are made.
Christine visits the grave of her father. There on the grave stands the Phantom, beckoning her to join him. Raoul appears and takes her away.
At last, the opening night of Don Juan Triumphant arrives. The theater is surrounded by guards and police, eager to catch the Phantom. As the opera comes to its end, the Phantom takes the place of Piangi, the lead singer. He confronts Christine on stage during the performance, and escapes with her once more to his labyrinth below the Opera House.
In a last confrontation, the Phantom gives Christine a choice: stay with him forever, or he will kill Raoul. Her decision brings to an end the story of The Phantom of the Opera.