At the beginning of the world, the daughters of the Rhine guard the pure gold buried in the river. If this gold were made into a ring, its wearer would be able to rule the world, but only if he gave up love. Alberich is a Nibelung, a small being from the lower world. He seeks the love of the daughters of the Rhine but is rejected. He discovers the secret of the ring, seizes the gold, and makes off with it.

Simultaneously Wotan, lord of the upper world, fashioned a spear from the primeval ash-tree. He carved rules and treaties on the spear, in order to impose order and justice. He has employed giants, the earth’s early inhabitants, to build him a fortress, from which he and his family may rule the world. The giants Fasolt and Fafner expect payment for their labour, and Wotan has rashly promised them his wife Fricka's sister Freia, who embodies love and whose golden apples sustain eternal youth. He relies on the mercurial and fiery Loge to extract him from his bargain. Loge has searched the earth in vain to find one who will forgo love; only the lowly Alberich is an exception. Wotan resolves to confront this potential rival for his power and use the stolen gold to pay off the giants.

Loge leads Wotan from the mountain top down to the bowels of the earth, where Alberich has compelled his fellow Nibelungs to work ceaselessly to mine gold and amass his fortune. His brother Mime, the most skilful smith, has fashioned a ring, with which Alberich commands obedience, and a magic helmet which can render him invisible. Alberich boasts that he will use these devices to conquer the world. Loge persuades him to demonstrate the workings of the helmet to transform himself; first into a dragon; then into a toad, in which form Wotan seizes and binds him.

Wotan and Loge drag the captured Alberich back past the gold mines to the mountain top, where they force him to summon his slaves with all the gold. Finally, Wotan tears the ring from his finger.The devastated Alberich lays a curse on the ring, that it shall destroy whoever possesses it. When the giants return with Freia, they pile up the gold until it covers her, save for the glint of her eye. Wotan reluctantly yields the ring to cover it, after being warned by Erda the earth-mother that it will destroy him. The giants quarrel over the spoils and Fafner kills Fasolt, terrifying proof of Alberich’s curse and Erda’s prophecy. Donner clears the mists and Froh spins a rainbow bridge to transport Wotan and his family to their new stronghold, Valhalla. Far below, the Rhine-daughters lament the loss of their gold.