After the Phantom enchants Carlotta's voice, reducing it to a frog-like croak, Firmin announces to the audience that Christine will take over the starring role. As he brings the ballet forward to keep the audience entertained, the corpse of Joseph Buquet, the Opéra's chief stagehand, suddenly drops from the rafters.

After he overhears Christine and Raoul declare their love for each other, the heartbroken Phantom angrily vows revenge, then returns to the auditorium and drops the chandelier into the audience.

The Phantom, who has been conspicuously absent since the chandelier disaster, suddenly reappears in costume as the Red Death.

He announces that he has written an opera entitled Don Juan Triumphant during his absence and demands that it be produced with Christine (who is now secretly engaged to Raoul) in the lead role. Noticing the engagement ring Christine is wearing on a chain around her neck, the Phantom tears it off and vanishes in a blinding flash of light.

When Raoul demands that she reveal what she knows about the Phantom, Madame Giry reluctantly explains that he is a brilliant scholar, magician, architect, inventor, and composer who was born with a horribly deformed face and cruelly exhibited in a cage as part of a traveling fair until he eventually escaped and took refuge beneath the opera house.

During rehearsal, Piangi is unable to sing his part in the new opera, causing frustration and chaos for everyone. The piano suddenly begins to play the piece by itself (having been possessed by the Phantom) and the entire company immediately sings the proper notes in unison.

With armed policemen guarding the auditorium and everyone on the lookout for the Phantom, Don Juan Triumphant premieres with Christine and Piangi singing the lead roles. During Don Juan's and Aminta's duet, however, Christine realizes suddenly that the Phantom has somehow replaced Piangi.

Determined to make her his own, the Phantom compels Christine to wear a wedding dress.

Christine tells the Phantom that he is not alone and kisses him. Having experienced kindness for the first time, he realizes that he cannot win Christine by force and frees Raoul.

As the angry mob closes in, the Phantom sits on his throne and hides beneath his cloak. Meg reaches the lair first and approaches the throne with curiosity. She tugs at the Phantom's cloak, but finds only his mask sitting on the empty throne.