At a performance by the Ballet Lermontov at Covent Garden Opera House, music student Julian Craster is in attendance to hear the ballet score Heart of Fire, composed by his teacher, Professor Palmer. Separately present is Victoria 'Vicky' Page, a young, unknown dancer from an aristocratic background, with her aunt, Lady Neston. As Heart of Fire progresses, Julian recognises the music as one of his own compositions. During the performance, Professor Palmer receives an invitation to an after-ballet party at Lady Neston's residence, also asking Boris Lermontov, the company impresario, to attend. Julian leaves the performance in disillusionment at his professor's plagiarism of his music. Lermontov and Vicky meet, and he invites her to a rehearsal of the company.

Julian has written to Lermontov to explain the circumstances behind Heart of Fire, but then tries to retrieve the letter. Lermontov's assistant Dimitri thwarts all attempts by Julian to gain entry to Lermontov's suite, but finally Lermontov gives Julian an audience. Julian says that he wishes to retrieve his letter before Lermontov has seen it, except that Lermontov has already read the letter. Lermontov asks Julian to play one of his own works at the piano. After hearing Julian play, Lermontov realises that Julian was the true composer of Heart of Fire. Lermantov hires Julian as a répétiteur for the company orchestra and assistant to the company's conductor, Livingstone Montague (known colloquially to the company as 'Livy').

Julian and Vicky arrive for work at the Ballet Lermontov on the same day. Later, Vicky dances with Ballet Rambert in a matinee performance of Swan Lake at the Mercury Theatre, Notting Hill Gate, in a production with a company led by Marie Rambert (who appears in the film as herself in a wordless cameo). Watching this performance, Lermontov realises her potential and invites Vicky to go with Ballet Lermontov to Paris and Monte Carlo. He decides to create a starring role for her in a new ballet, The Ballet of the Red Shoes, for which Julian is to provide the music. In three weeks creating the ballet together, Julian and Vicky learn to trust and respect each other as artists.

The Ballet of the Red Shoes is a resounding success and Lermontov revitalises the company's repertoire with Vicky in the lead roles and Julian tasked with composing new scores. In the meantime, Vicky and Julian have fallen in love, but keep their relationship secret from Lermontov. Lermontov begins to have personal feelings toward Vicky; he resents the romance between her and Julian after learning of it. The impresario fires Julian; Vicky leaves the company with him. They marry and live in London, where Julian works on composing a new opera.

Some time later whilst traveling, Vicky receives a visit from Lermontov, who convinces her to return to the company to "put on the red shoes again," to dance her famous role once more. On opening night, Julian appears in her dressing room; he has left the première of his opera at Covent Garden to find her and take her back. Lermontov arrives; he and Julian contend for Vicky's affections, each one arguing that her true destiny is with him only. Torn between her love for Julian and her need to dance, she eventually chooses the latter.