As she prepares to tell her father she will not marry Vasek because she loves someone else, Marenka asks Jeník to tell her more about his background, but he will only say that his mother died when he was a boy. After his father re-married, Jeník felt so unwanted that he left home to live in Moravia. Now he has returned. Jeník tells Marenka that he loves her deeply and they dream of having their own farm someday.

As Kecal, the marriage broker who is trying to arrange Marenka's marriage to Vasek, asks Marenka's parents for their signature on the deal, they begin to question whether they are doing the right thing. Krusina, Marenka’s father, remarks that he has always heard that Mícha has two sons, but has never met either one. He asks Kecal to tell him about both sons, but Kecal insists that Vasek is just the man for Marenka and that no one knows what has happened to Mícha 's eldest son. Marenka joins them and tells her parents that she already has a sweetheart she has promised to wed. As the square fills with villagers celebrating the festival with their traditional dances - the polka and Furiant - Kecal plots to find out who Marenka's sweetheart is and to offer him money to leave her.

Marenka, meanwhile, has a plan of her own. She finds Vasek, who is on his way to court her, and, without letting him know who she is, tells him that the woman he is going to marry is not a nice girl at all. Marenka then describes a fictional true love for Vasek - loving and sweet like she is - who is just right for him. Marenka gets Vasek to swear that he will give up marrying the mean Marenka.

Meanwhile Kecal finds Jeník, who he thinks is a simple farm worker. Kecal tries to bribe Jeník with an offer of marriage to another girl who Kecal will only describe by bragging about how rich she is. On top of this, Kecal offers Jeník 100 crowns to give up Marenka. Jeník refuses and insists on knowing who is putting up the money to free Marenka. When Kecal lets slip that his client is Tobias Mícha, Jeník suddenly agrees to give up Marenka for 300 crowns, "provided Marenka is to marry one man alone, and that man is Tobias Mícha's son, or the contract will be canceled on the spot.” He also adds that Marenka must be free to many without a dowry, and that her father must be free of all his debt to Tobias Mícha once Marenka marries Mícha's son. When the news comes out that Jeník has bartered Marenka for 300 crowns, the village is angered by his greed.

Later that day, a traveling circus comes to the village as part of the Festival Day celebration. The Ringmaster introduces his troupe; including the lovely gypsy tightrope walker Esmeralda, an American Indian from Coney Island, and a "live" dancing bear who will do the Can-Can with Esmeralda. As a preview of the evening's show, they perform The Dance of the Comedians. In the crowd, Vasek notices and takes a liking to Esmeralda, whom he approaches after the dance.

Suddenly the Indian runs in with the news that the man who plays the dancing bear has disappeared again. Esmeralda and the Ringmaster realize that Vasek would fit the bear suit, and they try to talk him into performing with them that evening. He is delighted and agrees.

Háta and Tobias Mícha enter with Kecal, looking for Vasek so he can sign the marriage contract. Vasek refuses, telling them that a lovely girl has made him change his mind. This confuses his parents and Kecal, who resolve to unravel this mystery. Meanwhile, Marenka is with her parents, upset at the news that Jeník has given her up for 300 crowns. Kecal joins them and proves the deed by showing Marenka his contract with Jeník. Marenka still refuses to marry Vasek, and thinks about staying single forever. Vasek and his parents appear. Once Vasek realizes that the sweet girl who charmed him earlier is Marenka herself, he happily agrees to marry her, but Marenka requests time alone to think over her decision.