The factory bell rings and the men of Seville gather round the female workers as they return after their lunch break. The gypsy Carmen is awaited with anticipation. When the men gather round her, she tells them love obeys no known laws (Habañera). Only one man pays no attention to her - Don José. Carmen throws a flower at him. The women go back into the factory and the crowd disperses.
Micaëla returns, bringing news of José's mother. She has sent Micaëla, who lives with her, to give him a letter. José feels that his mother is protecting him from afar. When he starts to read her letter, Micaëla runs off in embarrassment since it suggests that he marry her. At the moment that he decides to obey, a fight is heard from within the factory. The girls stream out with sharply conflicting accounts of what has occurred, but it is certain that Carmen and one of her fellow workers quarreled and that the other girl was wounded. Carmen, led out by José, refuses to answer any of Zuniga's questions. José is ordered to tie her up and take her to prison. Carmen entices him to go dancing at Lillas Pastia's tavern outside the walls of Seville. Mesmerized, José agrees to help her escape. He unties the rope and, as they leave for prison, Carmen slips away. Don José is arrested.
Carmen and her friends Frasquita and Mercédès entertain Zuniga and other officers. Zuniga tells Carmen that José has been released this very day. A torchlight procession in honor of the bullfighter Escamillo is heard, and the officers invite him in. He describes the excitements of his profession, in particular the amorous rewards that follow a successful bullfight. Escamillo then propositions Carmen, but she replies that she is engaged for the moment. He says he will wait. Carmen refuses to leave with Zuniga, who threatens to return later.