In El Pardo park, Lavapiés there are festive crowds of pedlars, young lovers and students bustle around. The dentist-barber Lamparilla enters and sings of his career before aiming his comments at the government. Paloma comes on next, singing; although Lamparilla loves her, she just flirts back at him. Next the Marquesita enters incognito for a secret meeting with Don Juan de Peralta, a fellow conspirator in a plot of the Infanta to get rid of the unpopular prime minister Grimaldi and replace him with Floridablanca. Before they can retire for discussions, Don Luis, the nephew of Grimaldi and her fiancé arrives. He notices the Marquesita with Juan, he fetches guards to challenge him, and a duel seems likely.
La Marquesita asks her seamstress La Paloma what to do to help save Juan, setting out the position. Lamparilla joins them and they agree to dress her up in festive garb as a distant cousin to effect her escape. When Luis returns Lamparilla leads a veiled woman away into a neighbouring house. When the police come to the inn, Lamparilla at first diverts attention, but when Luis tells Don Pedro, the guards' commander of the conspiracy, a sedan chair is carried on to take the prisoners but when it leaves it is Lamparilla who peeks out between the curtains.
In the Plaza de Lavapiés, the locals gossip about the disappearance of Lamparilla while guards keep watch. The barber suddenly appears, claiming that he was only held for smashing up street lamps. Paloma meets La Marquesita and thanks her for the money which was used to bribe the jailer, and the Marquesita tries to get Lamparilla to be part of the plot against Grimaldi. She asks Lamparilla to get some louts to destroy the street lamps and divert the guards' attention.
Don Luis arrives to talk of love to the Marquesita, while suspecting her of being unfaithful, but she refuses to see him for four days, then joins the conspirators next door. Luis comes back in disguise, with the other plotters. Paloma and Lamparilla are alone when they notice masked men going into La Marquesita's house. Don Luis and Don Pedro arrive to prepare to snatch them. When the troublemakers come to smash the lamps, Lamparilla begins to sing a seguidille to distract the guards. As the guards prepare to grab the plotters, Paloma warns La Marquesita who is just able to escape through adjoining shops with the co-conspirators. The acts closes in confusion as the guards cannot decide whether to chase the plotters or arrest the troublemakers.
In Paloma's attic workshop the seamstresses sing while they work. Since the conspiracy was uncovered Paloma has not been able to see La Marquesita. She secretly hatches her plan to allow Marquesita and Don Luis to flee in disguise from Madrid. Lamparilla has made the final preparations, and brings in Don Luis in his finery; they all anticipate the journey out to the country.
Just in time the four hide in Paloma's chamber as Don Pedro and his guards burst in. But Paloma and the noble couple are soon caught. However, Lamparilla had fled across the rooftops and he rushes back in to announce that Grimaldi has been removed and Floridablanca replaced him as prime minister. As a nephew of Grimaldi, Don Luis is forced to go into exile but La Marquesita decides to join him, while Lamparilla and Paloma pledge their mutual love, and all ends in joy and happiness.
