The play begins in the bedroom of Raina Petkoff in a Bulgarian town in 1885, during the Serbo-Bulgarian War. As the play opens, Catherine Petkoff and her daughter, Raina, have just heard that the Bulgarians have scored a tremendous victory in a cavalry charge led by Raina's fiancé, Major Sergius Saranoff, who is in the same regiment as Raina's father, Major Paul Petkoff. Raina is so impressed with the noble deeds of her fiancé that she fears that she might never be able to live up to his nobility. At this very moment, the maid, Louka, rushes in with the news that the Serbs are being chased through the streets and that it is necessary to lock up the house and all of the windows. Raina promises to do so later, and Louka leaves. But as Raina is reading in bed, shots are heard, there is a noise at the balcony window, and a bedraggled enemy soldier with a gun appears and threatens to kill her if she makes a sound. After the soldier and Raina exchange some words, Louka calls from outside the door; she says that several soldiers want to search the house and investigate a report that an enemy Serbian soldier was seen climbing her balcony. When Raina hears the news, she turns to the soldier. He says that he is prepared to die, but he certainly plans to kill a few Bulgarian soldiers in her bedroom before he dies. Thus, Raina impetuously decides to hide him. The soldiers investigate, find no one, and leave. Raina then calls the man out from hiding; she nervously and absentmindedly sits on his gun, but she learns that it is not loaded; the soldier carries no cartridges. He explains that instead of carrying bullets, he always carries chocolates into battle. Furthermore, he is not an enemy; he is a Swiss, a professional soldier hired by Serbia. Raina gives him the last of her chocolate creams, which he devours, maintaining that she has indeed saved his life. Now that the Bulgarian soldiers are gone, Raina wants the "chocolate cream soldier" (as she calls him) to climb back down the drainpipe, but he refuses to; whereas he could climb up, he hasn't the strength to climb down. When Raina goes after her mother to help, the "chocolate cream soldier" crawls into Raina's bed and falls instantly asleep. In fact, when they re-enter, he is sleeping so soundly that they cannot awaken him.
Act II begins four months later in the garden of Major Petkoff's house. The middle-aged servant Nicola is lecturing Louka on the importance of having proper respect for the upper class, but Louka has too independent a soul to ever be a "proper" servant. She has higher plans for herself than to marry someone like Nicola, who, she insists, has the "soul of a servant." Major Petkoff arrives home from the war, and his wife Catherine greets him with two bits of information: she suggests that Bulgaria should have annexed Serbia, and she tells him that she has had an electric bell installed in the library. Major Sergius Saranoff, Raina's fiancé and leader of the successful cavalry charge, arrives, and in the course of discussing the end of the war, he and Major Petkoff recount the now-famous story of how a Swiss soldier escaped by climbing up a balcony and into the bedroom of a noble Bulgarian woman. The women are shocked that such a crude story would be told in front of them. When the Petkoffs go into the house, Raina and Sergius discuss their love for one another, and Raina romantically declares that the two of them have found a "higher love."
When Raina goes to get her hat so that they can go for a walk, Louka comes in, and Sergius asks if she knows how tiring it is to be involved with a "higher love." Then he immediately tries to embrace the attractive maid. Since he is being so blatantly familiar, Louka declares that Miss Raina is no better than she; Raina, she says, has been having an affair while Sergius was away, but she refuses to tell Sergius who Raina's lover is, even though Sergius accidently bruises Louka's arm while trying to wrest a confession from her. When he apologizes, Louka insists that he kiss her arm, but Sergius refuses and, at that moment, Raina re-enters. Sergius is then called away, and Catherine enters. The two ladies discuss how incensed they both are that Sergius related the tale about the escaping soldier. Raina, however, doesn't care if Sergius hears about it; she is tired of his stiff propriety. At that moment, Louka announces the presence of a Swiss officer with a carpetbag, calling for the lady of the house. His name is Captain Bluntschli. Instantly, they both know he is the "chocolate cream soldier" who is returning the Major's old coat that they disguised him in. As they make rapid, desperate plans to send him away, Major Petkoff hails Bluntschli and greets him warmly as the person who aided them in the final negotiations of the war; the old Major insists that Bluntschli must their houseguest until he has to return to Switzerland.
Act III begins shortly after lunch and takes place in the library. Captain Bluntschli is attending to a large amount of confusing paperwork in a very efficient manner, while Sergius and Major Petkoff merely observe. Major Petkoff complains about a favorite old coat being lost, but at that moment Catherine rings the new library bell, sends Nicola after the coat, and astounds the Major by thus retrieving his lost coat. When Raina and Bluntschli are left alone, she compliments him on his looking so handsome now that he is washed and brushed. Then she assumes a high and noble tone and chides him concerning certain stories which he has told and the fact that she has had to lie for him. Bluntschli laughs at her "noble attitude" and says that he is pleased with her demeanor. Raina is amused; she says that Bluntschli is the first person to ever see through her pretensions, but she is perplexed that he didn't feel into the pockets of the old coat which she lent him; she had placed a photo of herself there with the inscription "To my Chocolate Cream Soldier." At this moment, a telegram is brought to Bluntschli relating the death of his father and the necessity of his coming home immediately to make arrangements for the six hotels that he has inherited. As Raina and Bluntschli leave the room, Louka comes in wearing her sleeve in a ridiculous fashion so that her bruise will be obvious. Sergius enters and asks if he can cure it now with a kiss. Louka questions his true bravery; she wonders if he has the courage to marry a woman who is socially beneath him, even if he loved the woman. Sergius asserts that he would, but he is now engaged to a girl so noble that all such talk is absurd. Louka then lets him know that Bluntschli is his rival and that Raina will marry the Swiss soldier. Sergius is incensed. He sees Bluntschli and immediately challenges him to a duel; then he retracts when Raina comes in and accuses him of making love to Louka merely to spy on her and Bluntschli. As they are arguing, Bluntschli asks for Louka, who has been eavesdropping at the door. She is brought in, Sergius apologizes to her, kisses her hand, and thus they become engaged. Bluntschli asks permission to become a suitor for Raina's hand, and when he lists all of the possessions which he has (200 horses, 9600 pairs of sheets, ten thousand knives and forks, etc.), permission for the marriage is granted, and Bluntschli says that he will return in two weeks to marry Raina. Succumbing with pleasure, Raina gives a loving smile to her "chocolate cream soldier."