On the outskirts of the city of Stamboul, Shem-el-Nessim, a follower of the cult of Fizek-el-Jerks, is interrupted in his exercises by a group of mischievous boys teasing an aged holy man. He rescues the old man from the youths and is rewarded with the gift of a magic pipe and a sacred necklace.

After taking leave of the holy man, Shem-el-Nessim walks past the city's busy slave market, Harround-sel-Frij. He catches sight of the beautiful Rahat Lakoum and falls in love with her, only to see her sold to the great Sheik, Muk-el-Boob. The Sheik makes the slave master his Grand Vizier and they leave for the palace. Shem-el-Nessim summons the slave of the magic pipe to help him and he is transported to Rahat Lakoum's boudoir at the palace.

Shem-el-Nessim quickly woos Rahat, and offers her the sacred necklace as a token of his love. The Sheik and the Grand Vizier catch the couple, and Shem-el-Nessim is taken away and hanged. They summon the Djinn of the Magic Pipe and ask him for the necklace that Shem-el-Nessim wears about his neck. The pair are immediately transplanted to the noose that surrounds Shem-el-Nessim's neck, while he is returned to Rahout's chamber.

The palace servants offer Shem-el-Nessim the scimitar and crown of Muk-el-Boob, and he and Rahout kiss.