The story is set in the Austrian Tyrol where the free-spirited but vulnerable Wally is in love with the handsome Giuseppe Hagenbach, the son of her father's implacable enemy. This leads to the inevitable disastrous conclusion.
The village of Hochstoff
A shooting contest is being held in celebration of the 70th birthday of Wally's father, Stromminger. A hunting party arrives from the nearby village of Sölden led by Hagenbach. Old enmities quickly surface and a quarrel develops between Stromminger and Hagenbach, who trade threats and insults before Hagenbach is drawn away by his companions.
Vincenzo Gellner has his own heart set on Wally and is quick to notice that during the quarrel she is clearly infatuated with her father's enemy. When left alone with Stromminger, he tells the old man of his suspicions. Recognising that Gellner is in love with his daughter, he insists that Wally agrees to marry him within a month or else leave his house forever. Wally retorts that she would rather take her chances in the Alpine snows than marry Gellner.
The Eagle Tavern at Sölden
A year has passed; Stromminger has died and Wally has inherited his fortune. However, Hagenbach has become engaged to Afra, the landlady of the Eagle Tavern, and is apparently not interested in Wally.
A festival is taking place in Sölden and Wally is drawn to the tavern knowing that Hagenbach will be there. Hagenbach is persuaded to accept a challenge to try to win a kiss from Wally. What begins as a game quickly develops into something more serious, and Hagenbach easily wins his wager. When Wally realises she has been the victim of a cynical bet, her jealousy and fury boil over. She turns to Gellner, who is also at the festival, and insists that if he loves her he must kill Hagenbach.
La Wally returns to her home. The anger she felt has now subsided and she wishes she could take back her words. At that moment there is a knock at her door. It is Gellner, who describes how under cover of darkness he was able to set upon Hagenbach and hurl him into a deep ravine.
Wally is horrified and hurries to the ravine in the hope of saving Hagenbach, even though she believes he loves Afra. She herself goes down a rope to rescue him and successfully raises his unconscious body back to the surface.
High in the Alps
Lonely and depressed, Wally has climbed into the mountains above the village. Her only friend, Walter, has followed and urges her to come down for the Christmas festivities and reminds her of the dangers of avalanches. She sends him away and contemplates her imminent death.
Wally hears another voice. It is Hagenbach, who has recovered from his injuries and come to confess his love. The lovers are reconciled and Hagenbach goes to find a safe path back down the mountain. He shouts up to Wally, but the noise of his call sets off an avalanche which carries him away. Wally stands for a moment on the edge of the precipice before hurling herself down to her death.