The action takes place in an old German town. It is getting dark and it is snowing. The guests are arriving at the big brightly-lit house of Schtalbaum. The Christmas party is about to begin. Among the party guests there is an old and eccentric - inventor and toy-maker Drosselmeyer.
The sitting-room in Schtalbaum’s house is beautifully decorated. The guests are assembling. The moment Drosselmeyer enters the room the Christmas tree lights up and the party begins. When the party is in full swing, a strange guest in a mask appears and begins to show his clockwork dolls: Clara and the Nutcracker. The dolls act out a scene: The Nutcracker makes a declaration of love to Clara and she returns his feelings. But suddenly threatening mice appear and fall upon the Nutcracker. Seeing that her protector is broken, Clara turns him down. The strange man takes off his mask and everybody recognizes the kind eccentric Drosselmeyer. Both the adults and the children are delighted and, taking the presents, they all leave the room to go to the festive dinner. Maria is the only person left in the room. She bends over the broken Nutcracker. She feels sorry for the doll, picks it up and starts dancing with it, pretending, one minute, that it is her dancing partner (cavalier) and the next moment that it is a small toy. It’s getting late and the guests are saying good-bye to the hosts.
Drosselmeyer is also leaving. Father and Mother send Maria to bed. The room is becoming empty, with only Nutcracker sitting lonely in the armchair. However, Maria cannot go to sleep and returns to the room to wish goodnight to the toy she has taken such a fancy to. At this moment the strange man appears in the corner of the room. With a wave of his hand everything in the room becomes alive and starts moving: the walls of the room expand, the Christmas tree begins to grow, the room is filled with a horde of mice, and there appear the menacing-looking King of the mice and the soldiers who start fighting the mice. But the forces are not equal and the soldiers retreat and run away. And at this point the Nutcracker joins the battle, but it is not in his power to destroy the hordes of the mice. The Nutcracker is defeated and the mice are about to fall upon him when suddenly Maria, who has been watching the scene with increasing horror, runs towards the Nutcracker and stands between him and the mice. As if by magic, the mice disappear and Maria finds herself in a snow-covered forest. The Nutcracker stands up and invites his rescuer to follow him into the fairy-tale world. Drosselmeyer who is following them, turns Maria’s dreams into reality.
Drosselmeyer, the story-teller and magician, is surrounded by his characters and is thinking of stories for new fairy tales. There appears Mary in the company of the Nutcracker. And once again the mice, headed by their King, stand in their way. The Nutcracker goes into battle again and this time he defeats the King of the mice. The light goes out and suddenly... a miracle happens! The Nutcracker turns into a handsome prince, the fairy tale guests turn into dolls who have come to life. The guests dance, one pair changing another. Maria feels happy as she is dancing with her beautiful prince and it seems this moment will last forever.
The night is over, a new day is dawning. For the last time the fairy tale characters are passing by behind the window. And Maria realizes that the events of the Christmas night are not just dreams.