The scene opens in Venice with twenty-four young maidens declaring their passionate love for a pair of gondoliers, Marco and Giuseppe Palmieri. These two gondoliers are so gallant and peerless in their manly beauty that the maidens are waiting for them to select brides before they can consider other suitors. The male chorus of merry gondoliers enters, saying that they adore the young ladies, but the ladies explain that the two brothers must choose first. When the Palmieri brothers enter, the ladies present them with flowers. The two gondoliers amiably offer to pick their two brides in a game of blind man's buff. "As all are young and fair, and amiable besides", they feel it would be unfair to show any favouritism. They appear to be cheating by peeking out from under their blindfolds, however. Eventually, from the crowd of twenty-four maidens, Giuseppe picks Tessa, and Marco picks Gianetta - "Just the very girl I wanted!" (although the two then politely offer to switch girls). All leave to go to church for the double wedding.
The Duke and Duchess of Plaza Toro soon arrive with the beautiful Casilda. They are now dressed in style, and the Duke explains how he was applied for by the public under the Limited Liability Company Act, and how they now earn a very good living. Appalled, however, at the lack of pomp and ceremony with which they were received, he attempts to educate the two monarchs in proper royal behaviour. After a lesson in etiquette, the two Palmieri brothers are left alone with Casilda. She agrees to be an obedient wife, but warns them that she is "over head and ears in love with someone else." Seizing this opportunity, the two men introduce their wives. The three ladies and two men sing a quintet about their unprecedented predicament.
Don Alhambra brings in the nurse who had tended the infant prince of Barataria twenty years ago. She reveals that when the Grand Inquisitor came to steal the prince, she had loyally hidden him away, and given Don Alhambra her own young son instead. Thus, the king is neither Marco nor Giuseppe, but her own son, Luiz. This resolves the romantic entanglements to everyone's satisfaction. Casilda finds that she is already married to the man she loves, Luiz. The two gondoliers surrender their crown to Luiz and, though a bit disappointed that neither will be a king, they can return happily to Venice with their wives. There is a final dance for the full company, reprising the gondoliers' Act I duet and the cachucha.