Act I
At a girls' school in Brighton on the south coast of England, the French mistress, Virginie Touchet, when not teaching French, surreptitiously indulges in an irresistible and ruinous addiction to gambling. She has befriended the young dancing teacher, Nancy Joye, under her wing. When Nancy uses her modest savings to help Virginie out, the latter promises her a huge reward if she wins the enormous cash prize with her latest "investment", a ticket for the Panama Lottery. The ticket wins, but nobody discovers the fact except for Widdicombe, the school butler, who throws over his previous lady-friend, Jeanie, the school's tuckwoman, and pursues Virginie.
Teddy Cavanagh is an aviator. In the course of his travels an Indian woman has given him a strange stone. In its normal state it is green, but when it is brought into contact with anyone who is passionately in love, it changes to red. When Teddy meets Nancy the stone rapidly goes from green to red. The austere headmistress, Miss Pindrop, does not like Nancy, and, finding her teaching her pupils a ragtime dance, she uses that as a pretext for dismissing her. Nancy is offered a post as teacher of dancing at a winter sports hotel in the Swiss mountains.
Act II
Teddy follows Nancy to Switzerland. His friend, Lord Lyndale travels out to join him. Virginie has also travelled out, pursued by Widdicombe, who is pursued by Jeanie. Also at the hotel is the villain of the piece, Baron Montalba, an old enemy of Teddy, and much enamoured of Nancy. To get Teddy out of the way, the Baron bets him that he cannot fly his aeroplane to London in two days, starting immediately. Teddy, taking Widdicombe as a witness, sets out, having sent the Indian jewel to Nancy, with a message asking her to wear it before he takes off, to show that his love for her is reciprocated. The Baron intercepts the jewel and substitutes for it a gorgeous necklace of diamonds.
Act III
At the Hotel Bristol in London, celebrations are in full swing for Virginie's (and Nancy's) windfall from the Panama Lottery. All misunderstandings are cleared up, the wicked Baron is foiled, and the lovers are united. The stone glows red for both of them.