In Venice, Bassanio, a not-so-wealthy nobleman, asks to borrow money from his dear friend and wealthy merchant Antonio, in order to have the funds to woo Portia, a wealthy noblewoman. Although Antonio doesn't have cash handy, because all of his ships are at sea, he gives Bassanio permission to borrow as much money as he needs on Antonio's credit.
Meanwhile, at her nearby country estate of Belmont, Portia laments to her serving woman Nerissa about her father's will, which stipulates that any man who wants to marry Portia must answer a riddle by choosing one of three "caskets," or chests (one gold, one silver, and one lead). Only the man who chooses correctly can become Portia's husband. Portia has been disgusted with all of her suitors thus far. Still, Nerissa reminds Portia of a fine Venetian marriage prospect—Bassanio.
Bassanio asks the Jewish moneylender, Shylock, to lend him 3000 ducats. After much hesitation, Shylock agrees—Antonio will guarantee the loan with his property as collateral. However, when Antonio himself arrives and begins insulting Shylock for committing usury (charging interest on his loans), Shylock proposes a bizarre alternative. He will not charge Bassanio any interest for three months. However, if Antonio defaults, Shylock will be entitled to cut one pound of flesh from anywhere on Antonio's body that he likes. Confident that his ships will return to Venice, with many times 3000 ducats, well before Shylock's deadline, Antonio accepts.
At Belmont, the Prince of Morocco arrives to try his luck at the riddle of the caskets. He chooses incorrectly (gold), and leaves in defeat. Meanwhile, in Venice, Lorenzo, a friend of Bassanio's, has fallen in love with Shylock's daughter, Jessica. One night, when Shylock goes out, Jessica steals a large sum of money from her father and elopes, as planned, with Lorenzo. Lorenzo and Jessica, along with many others, then travel with Bassanio to Portia's estate.
The Prince of Aragon is the next of Portia's suitors to try to solve the riddle of the caskets. After much deliberation, he chooses silver, which is wrong. As the Prince of Aragon leaves, Bassanio arrives, laden with gifts for Portia.
A few weeks pass, and news arrives that Antonio's ships have been lost at sea. Though Shylock has been unable to locate Jessica, he consoles himself that he will have his revenge in the form of the pound of flesh promised to him by his contract with Antonio.
Back at Belmont, Portia and Bassanio, who have spent all this time together, have fallen in love. Portia begs Bassanio to wait before facing the riddle, because she can't bear the thought of losing him if he guesses wrong. But he insists on going ahead. To their joy, he chooses the correct casket (lead). To seal their betrothal, Portia gives him a ring, instructing him never to lose it or give it away. Then Nerissa and Bassanio's vulgar friend Gratiano announce that they, too, intend to wed. However, just then, a letter arrives from Antonio, with news of his lost ships and Shylock's intention to collect his pound of flesh. Alarmed, Portia gives Bassanio enough money to repay the loan many times over. As Bassanio hurries off to Venice, Portia hatches a plan of her own to save Antonio.
In the court of Venice, the Duke is presiding over Antonio's trial. Shylock resists their requests that he show mercy and insists on pursuing his "pound of flesh," despite the fact that Bassanio has offered him 9000 ducats instead. Nerissa and Portia arrive on the scene, disguised as a law clerk and a lawyer, respectively. Portia points out that the contract Shylock holds doesn't give him the right to take any blood from Antonio, and that if Shylock sheds even a drop of blood while cutting Antonio's flesh that all of Shylock's wealth will be confiscated by the state. She further finds Shylock guilty of conspiring to kill a Venetian citizen, and therefore must hand over half of his wealth to Antonio and the other half to the state. Antonio and the Duke decide to show mercy, however: Shylock must only give half his wealth to Antonio, and promise to leave the other half of his wealth to Jessica and Lorenzo after his death. In addition, Shylock must convert to Christianity. Devastated, Shylock accepts.
As Portia is leaving, Bassanio (who still thinks she is Balthazar, the lawyer) tries to offer her money in thanks for her favorable judgment. She refuses, asking for his the ring that he is wearing instead. Thinking of his vow never to part with it, Bassanio hesitates. But after some prodding from Antonio, he gives in. Gratiano also gives his ring to Nerissa.
Back at Belmont, Lorenzo and Jessica have been enjoying an idyllic romantic evening. Shortly before dawn, Portia and Nerissa arrive, soon followed by Bassanio, Gratiano, and Antonio. The women feign indignation that their husbands lost their rings. However, they soon end the game and confess their role in the court scene. The couples are reconciled, and news arrives that Antonio's lost ships have returned safely to port, bearing great riches.