Siegfried has become separated from his friends. He arrives at the lakeside clearing, just as a flock of swans land nearby. He aims his crossbow at the swans, but freezes when one of them transforms into a beautiful maiden. At first, she is terrified of Siegfried. When he promises not to harm her, she tells him that she is the Swan Queen Odette. She and her companions are victims of a terrible spell cast by the evil owl-like sorcerer Von Rothbart. By day they are turned into swans and only at night, by the side of the enchanted lake – created from the tears of Odette's mother – do they return to human form. The spell can only be broken if one who has never loved before swears to love Odette forever. Von Rothbart suddenly appears. Siegfried threatens to kill him but Odette intercedes; If Von Rothbart dies before the spell is broken, it can never be undone.
As Von Rothbart disappears, the swan maidens fill the clearing. Benno and his companions also arrive and aim their crossbows at the maidens; Siegfried stops them just in time and dismisses them. Now, alone with Odette and the swan-maidens, Siegfried sets about winning Odette’s trust. They fall in love with each other. But as dawn arrives, the evil spell draws Odette and her companions back to the lake and they are turned into swans again.