As the play begins, the year is 1905, and an auction is taking place on the stage of the Opéra de Paris to clear away certain articles from the theatre's vaults. The auctioneer produces a giant chandelier which once hung from the ceiling of the opera house. He tells perspective buyers of the chandelier's connection with the strange tale of the Phantom of the Opéra which had intrigued Parisian theatregoers almost a half century ago. As the reassembled chandelier is lit, the overture begins, and the light rises slowly to the ceiling. When it reaches its former home in the center of the house, we are transported to the year 1861.
The proprietor of the Opéra, Monsieur Lefèvre, interrupts a dress rehearsal for the opera Hannibal in order to introduce his successors, Messrs Firmin and André, to the company of actors. As the leading soprano, Carlotta Giudicelli, performs "Think of Me" for the new managers, a backdrop suddenly tumbles to the floor dangerously near Carlotta's head. The chorus and dancers cry out that this is surely the work of the Phantom of the Opéra. Monsieur Lefèvre assures the new managers that the incident was merely an accident, but the ballet mistress, Madame Giry, brings forth a message that she says has come from the Phantom himself. In this message, which is addressed to André and Firmin, the Phantom lays out a few rules which he insists must be followed during their tenure as managers of the Opéra, just as they were during Monsieur Lefèvre's management. Box Five must be left unsold and left for the private use of the Phantom, and he must be paid a salary promptly each month.
Meanwhile, Carlotta insists that she cannot possibly go onstage tonight, and there is, unfortunately, no understudy to take her place. Madame Giry's daughter, Meg, suggests that Christine Daaé, a fellow dancer, should attempt the role. This seems a ridiculous notion to André and Firmin until they allow Christine to audition for them. The realize immediately that they have discovered a new star, and that evening, Christine performs the role of Elissa brilliantly. The new managers are delighted, as is the new patron of the Opéra, the Vicomte de Chagny (Raoul). He is even more delighted when he realizes that Christine is a childhood friend.
After the performance, Christine returns to her dressing room where she is applauded by a strange voice. She confides to Meg that she hears this voice often--that she has a mysterious teacher whom she has never seen and whom she believes to be the "Angel of Music." When Christine's father had passed away, he promised her that he would send an "angel of music" to watch over her and comfort her. And his promise had come true, for she is often visited by this strange voice which instructs her in her singing and has allowed her to develop to the point where she could replace Carlotta in such a difficult role as that of Elissa. Raoul appears to congratulate Carlotta on her performance and ask her to dinner. Christine gladly accepts, but no sooner is she left alone to change than she is confronted by her "angel", his voice full of anger at her familiarity with Raoul. Announcing that the time has come for Christine to look upon him, the Phantom appears in the mirror, a hooded, masked figure, beckoning her to join him. Outside the door of Christine's dressing room, Raoul can hear their conversation. He becomes alarmed, but cannot open the locked door. Eventually, the door opens of its own accord, but Christine has vanished--disappeared through the mirror.
The Phantom leads Christine through the caverns and underground waterways deep below the Opéra, taking her to his "home" beneath the streets of Paris. He has decided that she will live there with him--that she will sing for him and be his inspiration. He promises to teach her to sing as no one has ever sung before! Somewhat frightened, Christine faints. The next morning she awakes to find that the events which transpired the night before were not a dream, but were in fact real. The Phantom is seated at a gigantic organ, composing his music. Christine approaches him stealthily and snatches away his mask, revealing a hideously deformed face. The Phantom is furious. He had wanted her to think of him as a musician capable of producing great beauty, not as the physically deformed creature that he is. However, he still has plans for her. He returns her to the opera house--then sends a series of notes, detailing his plans for Christine and for the Opéra. He sends a critique of the performance to André and reminds Firmin that his salary has not yet been paid. He also warns Raoul to stay away from Christine and suggests that if Carlotta should attempt to resume her place as prima donna, a dreadful fate would await her. He further orders that the next opera will be Il Muto and that Christine shall be given the leading role of Countess, while Carlotta will play the page boy--a non-singing role. Carlotta is beside herself with anger. André and Firmin attempt to calm her and promise that they will cast the opera as they see fit, not as they have been ordered by this unseen Phantom.
The Phantom, however, is not to be trifled with. At the opening of Il Muto, he causes Carlotta to croak like a toad. When she attempts to continue, he shakes the chandelier so violently, that she rushes from the stage, terrified. As the curtains are brought down, the body of a stagehand is found dangling from the rafters, a victim of the Phantom's displeasure. Christine confides to Raoul everything that has happened, including her abduction by the Phantom. He promises her that everything will work out in the end, takes her in his arms, and kisses her gently. Christine then returns to the stage and complete's the opera in Carlotta's place. But as she steps forward for her curtain call, the giant chandelier drops from the ceiling and crashes to the floor at her feet. The Phantom has seen her tender moment with Raoul, and he has delivered a final warning.
AS the second act begins, it is New Year's Eve, and the Opéra has decided to host a masquerade ball. Six months have passed since the accident with the chandelier, and there has been no further trouble with the Phantom. Christine has secretly become engaged to Raoul, but she cannot bring herself to wear his ring openly for fear of the Phantom's wrath. Instead, she keeps it hidden, on a chain around her neck.
At the height of the ball, the Phantom makes his appearance wearing a mask of death. He has composed an opera, Don Juan Triumphant, and commands that the Opéra shall present it to the public or risk events much worse than the smashing of a chandelier. Then, approaching Christine, the Phantom rips the ring from her neck, proclaiming that she belongs to him and no one else. Then he vanishes, leaving his garments in a heap upon the floor where he had stood moments before.
While many are convinced that the Phantom is some sort of supernatural being, Raoul is convinced that he is just a man, like any other, and sets out to learn more about the mysterious figure. He learns from Madame Giry of a freak that she saw on display at a Paris fair many years ago. A terribly deformed creature with a brilliant mind, he was said to have once built a dreadful torture-chamber for a Persian monarch using a maze of mirrors. This poor man had escaped from the fair, and it was soon afterward that mysterious events had begun to transpire at the Opéra.
Meanwhile, André and Firmin are horrified by the Phantom's opera, but they are too frightened to refuse his demands. There are further notes in the script which instruct that the prima donna role shall be given to Christine, and that she shall return to her "angel" for further tutelage. Christine refuses, but Raoul convinces her that Don Juan Triumphant must have its premiere. He argues that the Phantom is sure to watch the performance from his booth, and that he can be arrested. Christine finds herself conflicted. Although she is frightened of the Phantom, she is not eager to betray her former "Angel of Music". Nevertheless, she agrees to follow through with Raoul's plan, and soon rehearsal for Don Juan Triumphant is underway.
On the night of the premiere, gunmen are placed around the auditorium, but the Phantom is nowhere to be found. The performance commences with Ubaldo Phangi playing the role of Don Juan, but as the final scenes draw nearer, Phangi falls victim to the Phantom. And when Don Juan emerges from the wings to lay siege to the chastity of the peasant girl Aminta, it is the cloaked Phantom, not Phangi, who stands before Christine. He sings magnificently of his love for her, and giving Christine his ring, begs her to save him from the terrible solitude that has been forced upon him. As he makes his final plea, however, Christine pulls away his cloak, revealing to the world his dreadful deformity. With an awful howl of anguish, he vanishes once more, dragging Christine with him down into the underground waterways as the authorities rush onstage to find the body of the murdered Phangi.
Once more, the desperate Phantom demands that Christine give herself to him, but the girl refuses, insisting that she could never love such an evil creature. But when the Phantom captures Raoul who has pursued them into the sewers, Christine promises to give herself to the Phantom for eternity in order to save her lover's life. She kisses the monster on the mouth, swearing that his appearance does not frighten her--that he need be alone no longer. This gesture reaches a spark of humanity that yet remains in the Phantom's soul, and he suddenly releases the two lovers, bidding them return to the upper world. The mob of theatre staff and armed men then converge on the Phantom's home, but just as they reach him, he flings the cloak over his head, and when it is thrown aside ... only his mask remains.