At the fictional Opera Populaire (based on the Paris Opéra House) in 1905, an auction of old theatre props is underway. Lot 665, purchased by the elderly Raoul, Vicomte de Chagny, is a music box in the shape of a monkey; he eyes it fondly, noting that its details appear "exactly as she said." Lot 666 is a shattered chandelier that, the auctioneer says, has a connection to "the strange affair of the Phantom of the Opera…a mystery never fully explained." As the chandelier is uncovered, it illuminates and slowly rises over the audience to its old position in the rafters. The years roll back and the Opéra returns to its 1880s grandeur. ("Overture")
It is now 1881. As Carlotta, the Opéra's resident soprano prima donna, rehearses for that evening's performance, a backdrop collapses without warning. "The Phantom! He's here!" the anxious cast members whisper. The Opera's new owners, Firmin and André, try to downplay the incident, but Carlotta refuses to continue and storms offstage. Madame Giry, the Opéra's ballet mistress, tells Firmin and André that Christine Daaé, a Swedish chorus girl and orphaned daughter of a prominent violinist, has been "well taught", and could sing Carlotta's role. With cancellation of the performance their only alternative, the owners reluctantly audition Christine, and to their surprise she is equal to the challenge. ("Think of Me") Backstage after her triumphant début, Christine confesses to her best friend Meg (Madame Giry's daughter) that she knows her mysterious teacher only as an invisible "Angel of Music" ("Angel of Music"). The new patron, Raoul, the Vicomte de Chagny, finds Christine, his old childhood playmate, in her dressing room. ("Little Lotte") Christine reminds Raoul about the "Angel of Music" stories that her late father used to tell them, and confides that the Angel has visited her, and taught her to sing. Raoul laughs at her "fantasies", and invites her to dinner. He exits, and a jealous Phantom appears in Christine's mirror in the guise of The Angel of Music ("Angel of Music/The Mirror"). Christine begs him to reveal himself. The Phantom obliges, then guides her into a ghostly underground realm ("The Phantom of the Opera"). They cross a subterranean lake to his secret lair beneath the opéra house. He then explains that he has chosen Christine to sing his music and serenades her ("The Music of the Night"). During the song, she sees a mannequin resembling herself in a wedding dress. When the mannequin suddenly moves, Christine faints and The Phantom carries her to a bed and expresses his love for her.
As the Phantom composes music at his organ ("I Remember…"), Christine awakens to the sound of the monkey music box. She slips up behind the Phantom, lifts his mask, and beholds his face. The Phantom rails at her curiosity, then ruefully expresses his longing to look normal—and to be loved by her. ("Stranger Than You Dreamt It")
Meanwhile, inside the opéra house, Joseph Buquet, the Opéra's chief stagehand who, like Madame Giry, inexplicably knows much about the Phantom, regales everyone with tales of the "Opéra Ghost" and his terrible Punjab lasso ("Magical Lasso"). Madame Giry warns Buquet to exercise restraint. In the managers’ office, Madame Giry delivers a note from the Phantom: he demands that Christine replace Carlotta in the new opera, Il Muto. ("Notes…") Firmin and André assure the enraged Carlotta that she will remain the star, ("Prima Donna") but during her performance, disaster strikes. ("Poor Fool, He Makes Me Laugh") The Phantom reduces Carlotta's voice to a frog-like croak. A backdrop lifts to reveal the corpse of Buquet, hanging from the rafters by the Punjab lasso.
In the ensuing mêlée, Christine escapes with Raoul to the roof, where she tells him about her subterranean rendezvous with the Phantom. Raoul is skeptical ("Why Have You Brought Me Here?/Raoul, I've Been There"), but swears to love and to protect her always. ("All I Ask of You") The Phantom, who has overheard their conversation, is heartbroken. He angrily vows revenge against Raoul ("All I Ask of You (Reprise)"), and the Opéra's mighty chandelier crashes to the floor as the curtain falls.
Six months later in the midst of the gala masquerade ball, the Phantom, costumed as the Red Death, makes his first appearance since the chandelier disaster. ("Masquerade/Why So Silent?") He announces to all the stunned guests that he has written an opera entitled Don Juan Triumphant. He demands that it be produced immediately, with Christine (who is now engaged to Raoul) in the lead role. He then seizes Christine's engagement ring and vanishes. Raoul demands that Madame Giry tell him about the Phantom. She reluctantly replies that he is a brilliant musician and magician born with a terrifyingly deformed face, who escaped from captivity in a traveling freak show and disappeared.
During rehearsals, Raoul hatches a plan to use Don Juan Triumphant as a trap to capture the Phantom, knowing the Phantom will be sure to attend its première. ("Notes/Twisted Every Way") Christine, torn between her love for Raoul and her gratitude for the Phantom's teaching, visits her father's grave, longing for his guidance. ("Wishing You Were Somehow Here Again"). The Phantom appears, again under the guise of the Angel of Music ("Wandering Child"). Christine nearly falls under his trance but Raoul abruptly arrives at the scene. The Phantom then taunts and launches fiery missiles at him ("Bravo Monsieur") until Christine begs Raoul to leave with her. Furious, the Phantom sets fire to the cemetery, promising revenge on them both.
Don Juan Triumphant opens with Christine and Ubaldo Piangi, the Opéra's principal tenor, singing the lead roles; meanwhile, the theatre is quietly infiltrated by an armed police presence. ("Don Juan") During their duet, Christine suddenly realizes that she is singing not with Piangi, but with the Phantom himself. ("The Point of No Return") He expresses his love for her and gives her his ring, but Christine rips off his mask, exposing his deformed face to the shocked audience. As Piangi is found strangled to death backstage, the Phantom seizes Christine and flees the theatre, trusting that Raoul will pursue them and fall into a trap he has set. An angry mob led by Meg searches the theatre for the Phantom, while Madame Giry tells Raoul how to find the Phantom's subterranean lair and warns him to beware the Phantom's Punjab lasso.
In the lair Christine is forced to don the doll's wedding dress. ("Down Once More/Track Down This Murderer") Raoul finds the lair, but the Phantom captures him with his lasso. He tells Christine that he will free Raoul if she agrees to stay with him forever; if she refuses, Raoul will die. ("Final Lair") Christine tells the Phantom that it is his soul that is deformed, not his face, and kisses him, comforting him with the notion that he is not alone. The Phantom, having experienced kindness and compassion for the first time, sets them both free. Christine returns the Phantom's ring to him, and he tells her he loves her. She cries, forces herself to turn away, and exits with Raoul. The Phantom, weeping, huddles on his throne and covers himself with his cape. The mob storms the lair and Meg pulls away the cape—but the Phantom has vanished; only his mask remains.