1860 Vienna:

The Waldner family is in Vienna to find a suitable husband for their elder daughter, Arabella. Their finances are low, and the expense of introducing Arabella to society is considerable. The problem is complicated by the money Mama spends on fortunetellers and palm readers, and Papa's passion for gambling. There is no money to dress the younger daughter, Zdenka, as a proper young lady of society. Furthermore, until Arabella has made a profitable marriage, Count Waldner does not want Zdenka to offer any competition; therefore she is forced to masquerade as a boy.

Arabella has suitors enough - Matteo, a young officer (whom Zdenka adores) and no less than three counts. Although Arabella does not think any of them is "the right man" for her, she feels pressured into making a choice by the end of the carnival season and is resigned to a marriage of convenience. But then, a small miracle happens that saves the Waldner's fortune and gives Arabella her "right man" in one fell swoop. This fortuitous event is the arrival Mandryka from Croatia, the nephew and heir of one of Waldner's old army comrades. Unaware that his friend had passed away, the Count sent the elder Mandryka a picture of Arabella, hoping to interest him in her. When the nephew opened the letter and found the picture, it was love at first sight, and he has now come to Vienna to find the girl. Mandryka and Arabella are introduced at the last ball of the season. They happily agree to announce their engagement the next day and Arabella says goodbye to her three counts. Then Zdenka complicates things; she has been writing love letters to Matteo (the officer who thinks he's in love with Arabella) under Arabella's name. Zdenka fears Matteo may leave Vienna or even kill himself because Arabella is marrying another man. She decides to assert her femininity and arranges a rendezvous. Matteo, of course, thinks he will be meeting Arabella. Unfortunately, Mandryka overhears them make arrangements with "the key to Arabella's room" and thinks the worst. Furiously, he storms off and bitterly courts Fiakermilli. But in the early hours of Ash Wednesday, explanations are exchanged. At Mandryka's request, Count Waldner bestows Zdenka on Matteo. Ashamed for having suspected Arabella, Mandryka feels unworthy of her. But, in one of the tenderest love scenes in opera, Arabella forgives him. Symbolizing their new life together, she brings a glass of fresh water, which Mandryka empties and smashes, saying, "As truly as the fact that no one will drink from this glass after me, so you are mine and I am yours for evermore!"