In the depths of the river, the Rhine maidens Woglinde, Wellgunde and Flosshilde are guarding the treasure of the Rhine at the behest of their father. The Nibelung dwarf Alberich in vain declares his love for them. Each of the Rhine maidens pretends to be in love with him, then mercilessly spurns him and laughs at his ugliness. Alberich is both insulted and furious.
The sun rises. Its rays, penetrating the waters of the Rhine, give a blinding sheen to the cliff face behind which the treasure lies hidden. Alberich is drawn by the glitter of the gold. From the Rhine maidens he discovers that if he can possess the gold and fashion a ring from it he would attain unbounded power. But this may only be done by someone who renounces love. The Rhine maidens believe that Alberich passionately wants love, and so they can safely share with him the secret of the treasure. However, blinded by the thought of holding sway over the world, Alberich rejects and curses love. He seizes the gold and disappears with it into the underworld kingdom of the Nibelungs.
The supreme god Wotan and his wife Fricka awake. Wotan looks at Valhalla – the impregnable hall of the gods, raised at his will by the giant-brothers Fasolt and Fafner. But Fricka sadly thinks of the price to which Wotan thoughtlessly agreed to pay the giants for this mighty residence – she thinks of Freia, the Goddess of Youth, who guards the golden apples that give the gods their eternal youth. In Despair, Freia begs Wotan, her sister Fricka and her Donner and Froh to protect her from the giant-brothers brothers who are on their way. Wotan, however, has not even considered the thought of giving Freia to the giants as payment for building the castle. He is relying on the assistance of Loge, the cunning and elusive God of Fire, who has promised him to find a solution to the problem.
The giants arrive and demand that Wotan, in line with the contractual conditions, surrender Freia to them. They know that if they lose Freia the gods will lose their eternal youth, and with it their power. Moreover, Fasolt is in love with Freia. Wotan falls on excuses, trying to gain time. The giants begin to understand that Wotan is prepared to annul the contract.
At last, Loge appears. He has searched the entire world and he has found nothing that can be given to the giants instead of the Goddess of Youth. But now he is more worried by something else: the gold of the Rhine has been stolen. The priceless treasure has fallen into the hands of Alberich, and he has already fashioned a ring that gives power over the world. Loge submits the Rhine Maidens' request to Wotan to help them recover the treasure. But Wotan himself, finding out about the ring, dreams of possessing it.
The giants, hearing Loge's tale, are prepared to take the gold instead of Freia as payment for building Valhalla. Then the giants take Freia as a guarantee until the evening. They will return her only on presentation of the redemption-dues – the gold of the Rhine.
Left without the Goddess of Youth the gods begin to grow decrepit. Wotan resolves to acquire the gold of the Rhine and purchase Freia from the giants. Together with the derisive Loge he departs into the underworld kingdom of the Nibelungs.
The gloomy underground cavern of Nibelheim, home to the Nibelungs. At one time, the Nibelungs were a united people who drew jewels from the Earth's core for the sheer sake of enjoyment. Now, Alberich mercilessly forces them into the bowels of the Earth in order to increase their wealth. He has forced his own brother, the skilful smith Mime, to forge him a magical helmet. The smith senses the unusual energy contained in his work, but is unable to guess at the secret it contains. Alberich seizes the helmet from Mime's hands and demonstrates its magic powers. Anyone who wears the helmet has the ability to take on any appearance that they choose. Only now can Alberich be sure of the inviolable power of his ring, only now can he fall asleep in peace, fearless of being robbed.
Wotan and Loge appear. Loge manages to creep up on Mime. He skilfully makes use of the dwarf's pain, fury and hatred of his tormentor - his own brother, Alberich – in order to bring his perfidious plan to fruition. From Mime, Loge and Wotan make the discovery of Alberich's power and the magic helmet. Noticing that his brother is approaching, Mime hides in terror. The vainglorious and conceited Alberich, despite his mistrust of strangers, cannot refrain from boasting, and tells of his powers. The cunning Loge asks him how he plans to guard himself and his power from any attempts on his life by his envious subjects. Alberich tells of the helmet. But Loge maintains that he will believe it only if he sees this magical transformation with his own eyes. Alberich adorns the helmet and becomes a dragon. Loge insists on continuing to test the theory. "It would be more clever yet," he says, "if you were in danger to transform yourself into a small animal so that you could hide more easily." Immediately Alberich demonstrates this possibility of the helmet and transforms himself into a toad. Wotan swiftly holds the toad down with his foot and Loge seizes Alberich's helmet from him. Tying up the Nibelung so that he is unable to turn the ring on his finger and use its power, the gods drag the captive Alberich to the exit from the cavern.
In order to regain the freedom he has lost, Alberich orders the Nibelungs to bring all their jewels and place them at Wotan's feet. But when Wotan also demands the ring, Alberich furiously protests, as he has paid the price of love for this ring. Paying no attention to Alberich's protests, Wotan rips the ring from Alberich's hand. Alberich now places a curse on anyone who wears the ring. It will bring misery and death. Wotan is left utterly unperturbed by the curse. He declares to the gds that the treasure has been found. But the gold is the price that must be paid to the giants...
The giants appear with Freia in order to complete the exchange. They want enough treasure so as to cover the Goddess of Youth from head to toe. The Nibelungs have insufficient jewels, Freia's head can still be seen, and Wotan must place his magic helmet on top of the pile. But even now the goddess' eyes can be seen. The giants demand that Wotan place the ring there. But Wotan would rather sacrifice Freia than the ring, and the prayers of the frightened gods cannot shake his resolve.
Suddenly Erda appears – she is the Goddess of Fate and the Underworld. Only her threat of the terrible death of the gods forces Wotan to surrender the ring. Freia, a symbol of youth, is once more at liberty. But lo! The curse of the Nibelungs comes true: Fafner kills Fasolt and vanishes with his prey.
The gods prepare to enter their new castle in triumph. Donner, the God of Thunder, raises a thunderstorm and clears away the clouds of mist. Froh, the God of Light, raises a rainbow bridge that leads to the castle. The gods enter Valhalla. Loge senses that this is the beginning of the end. The Rhine maidens bittlerly lament the loss of the treasure.