Ariel brings Ferdinand (the King's son) to Prospero's cave. Ferdinand thinks he's the only survivor from the shipwreck. Miranda, who has seen no other man but her father during her time on the island, sees Ferdinand and thinks he must be a spirit - while Ferdinand thinks Miranda is a goddess. The two young people fall in love, but Prospero is not pleased, and makes Ferdinand his prisoner.

On another part of the island we discover one of the groups of shipwreck survivors. They begin to wake up. They're surprised that their clothes seem fresh and new.

Ariel's magical song puts them to sleep again - all except Sebastian (the King's brother) and Antonio (Prospero's brother). Antonio convinces Sebastian that they should kill the King (Alonso) so that Sebastian can take his place. Fortunately everyone else wakes up again, before they can carry out their plan.

Elsewhere on the island, Trinculo, a jester who was on board the ship, comes across Caliban. Trinculo's drunken friend Stephano turns up, and gives Caliban strong alcohol. This makes Caliban believe that Stephano is more powerful than Prospero (who Caliban hates).

Meanwhile, Ariel, who has made himself invisible, watches the three drunken clowns. He causes havoc by whispering the accusation "thou liest" in Caliban's ear, then Stephano's. They become confused and fight.

Caliban reveals his plans to destroy Prospero and take over the island. Stephano drunkenly agrees. Caliban is delighted that Stephano has agreed to his plan and they sing to celebrate. Ariel plays a tune to accompany their singing which frightens both Trinculo and Stephano.

Caliban tells them not to be afraid in a moving speech that describes the beauty and magic of the island. Stephano, Trinculo and Caliban follow the sound of the music.