- Herbert Lom as Professor L. Petrie
- Heather Sears as Christine Charles
- Edward de Souza as Harry Hunter
- Michael Gough as Lord Ambrose D'Arcy
- Ian Wilson as The Dwarf
- Thorley Walters as Lattimer
- Patrick Troughton as The Rat Catcher
- Renée Houston as Mrs. Tucker
- Keith Pyott as Mr Weaver
The film opens in Victorian London on a December night in 1900. The first night of the season at the London Opera House finds the opening of a new opera by Lord Ambrose D'Arcy (Michael Gough), a wealthy and pompous man, who is annoyed and scornful when the opera manager Lattimer (Thorley Walters) informs him the theatre has not been completely sold out. No one will sit in a certain box because it is haunted. Backstage, despite the soothing efforts of the opera's producer, Harry Hunter (Edward de Souza), everyone, including the show's star, Maria, is nervous and upset as if a sinister force was at work. The climax comes during Maria's first aria, when a side of the scenery rips apart to reveal the body of a hanged stage hand. In a panic, the curtain is rung down, and Maria refuses to sing again.
With the show postponed, Harry frantically auditions new singers. He finds a promising young star in Christine Charles (Heather Sears), one of the chorus girls. Lord Ambrose lecherously approves of the selection, and invites Christine to dinner. In her dressing room after the audition, Christine is warned against Lord Ambrose by a Phantom voice. At dinner, Lord Ambrose attempts to seduce her, but as they are about to leave to his apartment, she is saved by Harry. On the ride back home, Christine tells Harry about the voice she heard. Intrigued, Harry takes Christine back to the opera house, where in her dressing room, a voice tells Harry to leave her there and go. At the same time the rat catcher Patrick Troughton is murdered by the Phantom's lackey, a dwarf (Ian Wilson). Investigating the murder, Harry leaves Christine by herself. where she is approached by a man dressed in black, wearing a mask with only one eye. The Phantom of the Opera. He tells her she must come with him but she screams and The Phantom flees. Harry comforts her and takes her home.
The next day Lord Ambrose sends a dismissal to Christine for refusing to come back to his apartment. Lord Ambrose chooses a more willing but less talented singer to take Christine's place. When Harry refuses to accept this he is also dismissed by Lord Ambrose. Visiting Christine at her boarding house, Harry finds some old manuscripts which he recognizes as a rough draft of the opera he has been producing. Questioning Christine's landlady Mrs. Tucker, he learns that it was written by a former boarder by the name of Professor Petrie, who had been killed in a fire at a printers that was to print his music. Making further inquiries, he learns that Petrie did not actually perish in the fire, but was splashed with Nitric Acid while apparently trying to extinguish the blaze, had run away in agony and was drowned in the River Thames. This is confirmed by the policeman who was in the area at the time, but the body was never recovered. Harry and Christine have a romantic day together. While having a moonlight carriage ride harry tells her about Petrie, and that he is convinced that Lord Ambrose stole Petrie's music. He leaves it at that, as he believes that the Professor is long since dead.
When she gets home later that night she confronted in bedroom by the dwarf, Christine faints from fright and is carried off. She returns to consciousness, deep in the cellars of the opera house, to see the Phantom playing a huge organ. He tells the frightened girl that he will teach her to sing properly, and rehearses her with fanatical insistence until she collapses from exhaustion. Meanwhile, Harry, reinstated as the opera producer, is worried about Christine's disappearance. Pondering the story of the mysterious Professor, he checks the river where he had last been seen. At that same moment, he hears the echo of Christine's voice emanating from a storm drain, and soon finds himself following the voice through one of London's water-filled sewers. The faint sound of the organ playing draws him down a tunnel where the dwarf attacks him with a knife. Harry subdues him, and finds himself facing the missing Professor as Christine looks on from a bed (where she'd been sleeping).
Harry asks the professor what had happened in his past. In a flashback, the Phantom says that five years before, as a poor and starving composer, he had been forced to sell all of his music, including the opera, to Lord Ambrose for a pitifully small fee with the thought that his being published would bring him recognition. When he discovered that Lord Ambrose was having the music published under his own name, Petrie became enraged and broke into the printers to destroy the plates. In burning sheet music that had already been printed, Petrie unwittingly started a fire, then accidentally splashed acid on his face and hands in an effort to put it out, thinking it was water. In terrible agony, he ran out, jumped into the river, and was swept by the current into an underground drain, where he was rescued and cared for by the dwarf, whose passion was music and who existed in the cellars underneath the opera house. The Phantom says that he is dying but his wishes to see his opera performed by Christine. They both agree to allow him time to complete her voice coaching.
When the opera is presented several weeks later, Lord Ambrose is confronted in his office by the Phantom. He rips off The Phantom's mask and sees his terrifying face, he runs out screaming into the night. As the curtain rises, with Christine in the lead role, the Phantom watches eagerly in the "haunted" box. Her performance brings him to tears as he hears his music finally presented. Listening enraptured to the music, the dwarf is discovered in the catwalks by a stage-hand and in the chase, he jumps onto a huge chandelier poised high above the stage over Christine. As the rope begins to break from the weight, the Phantom spots the danger. He rips off his mask, leaps from his box to the stage and pushes Christine safely from harm. He is impaled by the chandelier before the eyes of the horror-stricken audience.