The curtain lifts to show a large, beautifully appointed drawing room where Lady Chiltern is receiving her guests: beautiful socialites like Mrs. Marchmont and Lady Basildon, conservative politicians like Lord Caversham, and clever dandies like Lord Goring. In a minute, Lady Markby and Mrs. Cheveley join the party. Sir Robert Chiltern comes in and meets Mrs. Cheveley, who charms him with mysterious pronouncements on romance, affectation, and politics, and hints that she must ask him for a favor.
Soon most of the guests go down to dinner. Mrs. Cheveley takes the opportunity to reveal that she plans to blackmail Robert into supporting a fraudulent project called the Argentine Canal scheme. If he does not speak of it positively to the House of Commons, Mrs. Cheveley will make public a letter in which he sold a government secret. The letter would bring about Robert’s social and political ruin. At first Robert refuses proudly, prompting Mrs. Cheveley to deliver a cynical speech about the hypocrisy of English morality. But the threat of disgrace is too devastating, and Robert finally agrees to support the scheme.
In a little while, the guests return. Robert’s sister Mabel finds a brooch in the couch cushions, and Lord Goring asks to hold on to it for the moment. Mrs. Cheveley tells Lady Chiltern about Robert’s change of heart regarding the Argentine Canal, and triumphantly takes her leave. Lady Chiltern senses some sort of foul play, and asks Robert for an explanation. He tries to defend his decision, but finally agrees to write Mrs. Cheveley and retract his promise: Lady Chiltern has made it clear to him that their marriage hangs in the balance if he does not do the right thing.
The next morning, Robert talks with Lord Goring and asks him for help. Goring advises Robert to be entirely honest with Lady Chiltern, and to count on her forgiveness; but Robert explains despairingly that his wife does not tolerate imperfections, and would certainly never forgive him for an error as grave as the one he committed. Robert also describes how Baron Arnheim once intoxicated him with speeches about ambition and power, and admits that his old friend’s words still seem quite true, since power is a means to freedom. But Lord Goring implies that wealth and power are empty in themselves, and that Robert’s dishonesty has led not to freedom but to his ruin.
When Lady Chiltern comes home, Lord Goring tries to explain to her that all people have weaknesses and imperfections, even the best people; and that the only way to understand the world is to look at it with a generous eye, instead of demanding that it conform to a set of rigid expectations.
In a little while, Lady Markby and Mrs. Cheveley enter. Mrs. Cheveley asks about a missing diamond brooch, but none has been found. Lady Markby leaves soon afterwards. Mrs. Cheveley tells Lady Chiltern about Robert’s secret and quickly leaves. Lady Chiltern is consumed with disappointment and dismay: she tells Robert that he no longer deserves to be her ideal. Robert angrily explains that he does not want to be her ideal – he wants to be loved for himself. He leaves, and she dissolves into tears.
The third act finds Lord Goring at home, chatting pleasantly and philosophically with his butler. Robert comes to visit, and Lord Goring tries once again to convince him to tell his wife the truth. Meanwhile, Mrs. Cheveley enters unnoticed and hides in an adjoining room. Robert discovers her by accident and leaves in confusion. Mrs. Cheveley offers to give Robert’s incriminating letter to Lord Goring if he agrees to marry her. Lord Goring refuses, and quite suddenly locks her missing brooch around her wrist. She had stolen it from Lord Goring’s cousin years ago. In fear of the police, Mrs. Cheveley hands over Robert’s letter and leaves.
The final act takes place the following morning. Robert has made a brilliant speech against the Argentine Canal, and he has been elected to a seat in the Cabinet. Lady Chiltern suggests that he retire from politics, but after speaking with Lord Goring she resolves to encourage Robert to pursue whatever makes him happy. Mabel and Lord Goring become engaged, Robert and lady Chiltern reconcile, and peace is restored.