The curtain rises on an ante-chamber in the Royal Palace at Karlsberg. The young Prince Karl Franz, grandson of the King and Heir to the Throne, has just passed his examinations for entrance to the University of Heidelberg. His tutor and friend. Dr. Engel, himself an old Heidelberg student, has been appointed a Privy Councillor and deputed by the Prime Minister, Von Mark, to accompany the Prince to Heidelberg.

We are now transported to the Gardens at the Inn of the "Three Golden Apples" in the University Town of Heidelberg. It is May Day and the beginning of a new term. Ruder the Innkeeper, his niece Kathie, and Gretchen - a maid at the Inn - are in high spirits as they make preparations for the arrival of the new student - Prince Karl Franz. Lutz, pompous valet to the Prince, and his assistant Hubert try to persuade the Prince not to reside at the Inn, but without success. Kathie and the Prince meet and fall in love at first sight.

Four months have passed when next we find the Prince and his student friends returning from an all-night party. They are suddenly disturbed by the arrival of the Grand Duchess and her daughter, Princess Margaret, cousin of the Prince, and to whom he is betrothed. When they depart, the Prince, realising that he is about to be rushed into a "marriage of convenience "with Margaret, tells Kathie of his love and begs her to go away with him to Paris where they can be married. While Kathie is happily preparing for her journey, Von Mark arrives to tell the Prince that the King is seriously ill and commands Karl Franz to return to Karlsberg immediately. Dr Engel persuades him that it is his duty to do so. The Prince departs, promising Kathie that he will soon return to her.

Two years have passed, the old King has died, and Prince Karl Franz is now King. A Court Ball is in progress at which his betrothal to Princess Margaret is to be announced. During the evening Captain Tarnitz tries to persuade the Princess to marry him and learns from her that she is very much in love with Karl. Tarnitz tells the Princess that Karl is in love with Kathie. A message is brought to the King that Toni, the old waiter at the Inn, has arrived from Heidelberg and seeks an audience. Toni tells the King of the happenings at Heidelberg over the past two years, of how Dr. Engel has died, and reminds him of his promise to come back to Heidelberg and Kathie.

We are back at the Inn of the Three Golden Apples. Princess Margaret arrives, alone and tells Kathie of her great love for the King and of her desire to make him happy. She pleads with Kathie to leave Heidelberg and to put all thoughts of Karl out of her mind. The King arrives and Kathie, though broken-hearted, does as the Princess has asked, knowing that the love of a serving girl for a Prince could end no other way, and wishing only for the happiness of her beloved Student Prince.