Prince Orlofsky's parties are legendary. They delight everyone but him. Orlofsky suffers from that terrible disease of billionaires-ennui: everything bores him! He cannot laugh. Tonight, Doctor Falke is his 'Master of the Revels' and has arranged something special for the Count's amusement. Orlofsky promises to pin a medal on Falke's chest if it makes him laugh.
When the Act opens, the guests are singing in praise of the occasion. Adèle receives a less than warm welcome from her sister. 'Letter? What letter? I didn't send you a letter!' Falke sent it. He greets Adele warmly, congratulates her on her new career as an actress, and rechristens her 'Tanya'. A moment later Eisenstein arrives, calling himself the Marquis Renard.
First he makes the grave faux pas of mistaking the elegant actress Tanya for his housemaid! The guests take him to task in 'The Laughing Song'. Adèle joins in. Next, Eisenstein strikes up an undying friendship with Chevalier Chagrin, the pseudonym being used by prison governor Frank. But by the time Falke's chief guest of the evening arrives - a masked Hungarian Countess - Eisenstein has a pair of dancing girls on each arm and his infallible chiming watch at the ready.
He is extremely taken with the mysterious foreign lady. Being well acquainted with the watch and its uses, the 'Countess' (Rosalinde in disguise of course) encourages
Act 2, A summer house in the Villa Orlovsky
Eisenstein to put it through its paces. During 'The Watch Duet', she manages to take it from him in such a way that he dare not ask for it back. He bewails his disgrace at losing it.
Orlofsky's entertainments of course include a ballet - an obligatory ingredient in operettas of the period. This one is usually danced to one of the famous Strauss waltzes, although, for the original, Strauss wrote a sequence of national dances Spanish, Scottish, Russian, Hungarian … Then the 'Hungarian Countess' obliges the guests by singing a native Hungarian folksong - a Czardas. Then Count Orlofsky toasts the life and soul of the party - 'Champagne the Great!' Frank and Eisenstein are, by this stage, inseparable. The mood is one of universal friendship as Orlofsky begins the dancing with a waltz - the waltz!
The clock strikes midnight. Like twin Cinderellas, Eisenstein and Frank scramble out of doors, leaving behind a wake of wrong coats and hats, not realising that they are headed for the same destination.