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Prologue
During the overture, the curtain rises. From behind a second curtain, Tonio, dressed as his commedia character Taddeo, addresses the audience. (Si può?... Si può?... Signore! Signori! ... Un nido di memorie.) He reminds the audience that actors have feelings too, and that the show is about real humans.

Act I
At three o'clock in the afternoon, the commedia troupe enters the village, and the villagers cheer. Canio describes the night's performance: the troubles of Pagliaccio. He says the play will begin at "ventitre ore". This is an agricultural method of time-keeping, and means the play will begin an hour before sunset. As Nedda steps down from the cart, Tonio offers his hand, but Canio pushes him aside and helps her down himself. The villagers suggest drinking at the tavern. Canio and Beppe accept, but Tonio stays behind. The villagers tease Canio that Tonio is planning an affair with Nedda. Canio warns everyone that while he may act the foolish husband in the play, in real life he will not tolerate other men making advances to Nedda. Shocked, a villager asks if Canio really suspects her. He says no, and sweetly kisses her on the forehead. As the church bells ring vespers, he and Beppe leave for the tavern, and Nedda is left alone.

Nedda, who is cheating on Canio, is frightened by Canio's vehemence (Qual fiamma avea nel guardo), but the birdsong comforts her (Stridono lassu). Tonio returns and confesses his love for her, but she laughs. Enraged, Tonio grabs Nedda, but she takes a whip, strikes him and drives him off. Silvio, who is Nedda's lover, comes from the tavern, where he has left Canio and Beppe drinking. He asks Nedda to elope with him after the performance and, though she is afraid, she agrees. Tonio, who has been eavesdropping, leaves to inform Canio so that he might catch Silvio and Nedda together. Canio and Tonio return and, as Silvio escapes, Nedda calls after him, "I will always be yours!"

Canio chases Silvio but does not catch him and does not see his face. He demands that Nedda tell him the name of her lover, but she refuses. He threatens her with a knife, but Beppe disarms him. Beppe insists that they prepare for the performance. Tonio tells Canio that her lover will surely give himself away at the play. Canio is left alone to put on his costume and prepare to laugh (Vesti la giubba - "Put on the costume").

Act II
As the crowd arrives, Nedda, costumed as Colombina, collects their money. She whispers a warning to Silvio, and the crowd cheers as the play begins. Colombina's husband Pagliaccio has gone away until morning, and Taddeo is at the market. She anxiously awaits her lover Arlecchino, who soon serenades her from beneath her window. Taddeo returns and confesses his love, but she mocks him and lets in Arlecchino through the window. He boxes Taddeo's ears and kicks him out of the room, and the audience laughs.

Arlecchino and Colombina dine, and he delivers a sleeping potion. When Pagliaccio returns, Colombina will drug him and elope with Arlecchino. Taddeo bursts in, warning that Pagliaccio is suspicious of his wife and is about to return. As Arlecchino escapes through the window, Colombina tells him, "I will always be yours!"

As Canio enters, he hears Nedda and exclaims "Name of God! Those same words!" He tries to continue the play, but loses control and demands to know her lover's name. Nedda, hoping to continue the play, calls Canio by his stage name "Pagliaccio" to remind him of the audience's presence. He answers with his arietta: No! Pagliaccio non son! and states that if his face is pale, it is not from the stage makeup but from the shame she has brought to him. The crowd, impressed by his emotional and very real performance, cheers him.

Nedda, trying again to continue the play, admits that she has been visited by the very innocent Arlecchino. Canio, furious and forgetting the play, demands the name of her lover. Nedda swears she will never tell him, and the crowd finally realizes they are not acting. Silvio begins to fight his way toward the stage. Canio, grabbing a knife from the table, stabs Nedda. As she dies she calls: "Help! Silvio!". Canio stabs Silvio and declares: La Commedia è finita! - "The play is over!". Originally, Tonio had the final line, La commedia è finita! but it has traditionally been given to Canio. Leoncavallo himself sanctioned this substitution.