The action takes place in Lavapiés, lively downtown Madrid, during the reign of Carlos III (1759 -88). It is a story of political intrigue, centred on the aristocratic character of the Marquesita ("little marchioness"), and the help she receives from Lamparilla, the barberillo ("little barber") of the title. Her love for Don Luis de Haro is counterpointed with the Barber's pursuit of a Lavapiés seamstress, Paloma, in a plot combining serious, comic and satirical elements in equal proportion. Even the sinister chorus of Walloon Guards have more than a passing similarity to their first cousins, the chorus of Police in Gilbert and Sullivan's near-contemporary Pirates of Penzance.
Act 1. The Pardo, Lavapiés, Madrid, during the Festival of St. Eugene. A crowd has gathered to celebrate the fiesta, in which an ebullient group of street-sellers, young courting couples and students are prominent. Lamparilla, local rogue and dentist-barber, amuses the crowd with the story of his chequered career (Entrada: "Yo fui paje de un obispo",) before going on to make some trenchant criticisms of the government of the day. There is a crisis, and the Chief Minister Grimaldi has ordered night patrols and bright street lamps to dampen trouble. The seamstress Paloma, another popular figure, arrives with a song (Entrada: "Como nací en la calle de la Paloma"). Lamparilla is in love with her, but she teases and flirts with him. Don Juan de Peralta and Estrella, Marquesita of Bierzo enter in disguise. They are plotting the downfall of Grimaldi on behalf of Count Floridablanca, but before they can join their fellow conspirators at the nearby inn the Marquesita's fiancé Don Luis de Haro appears. He assumes the worst, but as he is a nephew of Grimaldi the Marquesita cannot tell him what she and Don Juan are really up to (Terceto: "La mujer que quiere a un hombre".) The Marquesita and Don Juan slip into the inn under cover of the arrival of a group of majas and students; but Don Luis, deeply suspicious, decides to fetch in the Walloon Guards to investigate and a duel is in prospect.
The Marquesita comes out of hiding to ask help from her dressmaker and confidante Paloma. She explains the political delicacy of the situation, asking Paloma to introduce her into the fiesta as an obscure cousin, and plead with Lamparilla to get her safely away (Terceto: "Por no sé qué aventurilla".) Don Luis approaches, but the Marquesita is saved from discovery by the wily Lamparilla, who offers his arm to the veiled lady and takes her into the house opposite. The Walloon Guards march in soon afterwards and surround the inn, but Lamparillo eludes Don Luis with a zany monologue and goes off to organise a distraction. Don Luis meets Commander of the Guard Don Pedro, who tells him about the plot involving his fiancé. As the crowd gathers, the Guard bring up a curtained sedan chair to arrest the conspirators without attracting too much attention. They do indeed end up with a prisoner, but the head poking out through the curtains as the act ends belongs merely to the ubiquitous Lamparilla.
Act 2. A Small Square in front of Lamparilla's barber shop. The Walloon Guards continue their night patrols, as Lamparilla's customers complain about the disasters that have befallen them at the hands of the barber's assistants during his absence (Coro: "Aquí está la ronda".) Lamparilla reappears, to everyone's delight. (Escena: "Por salvar...yo no sé como".) He boasts that he was imprisoned for breaking the new street lamps, but the truth is that the Marquesita bribed the jailor to set him free, and she again asks Paloma to persuade Lamparilla to join the conspiracy. She will even pay for their wedding, but Paloma - grateful to the Marquesita for looking after her dying mother - wants no payment. In any case the aim of the conspiracy is peaceable - to force Grimaldi to accept a meeting between the King and Floridablanca, so that the latter can explain his ideas of reform. The Marquesita wants Lamparilla to bribe some troublemakers to break the street lamps and distract the attention of the guards while the real action goes ahead. Don Luis appears, but the Marquesita forbids him to see her for four days before joining the conspirators in her house next to the barber shop. Bitterly he concedes (Duo: "¡En una casa solariega!") but soon returns to enter the house in disguise, with six of the conspirators.
Paloma calls on Lamparilla, and after a duet ripe with double-entendre (Duo:"Una mujer que quiere ver un barbero") she enters the shop to explain the plan further. Meanwhile Don Luis returns quietly, meeting with Don Pedro and his Walloons. Acting on Luis' tip-off, they settle down to watch the Marquesita's house and await their moment to break in and seize the conspirators. Don Luis tries to intercede for his fiancé, but Don Pedro is adamant that everyone must be captured. As the crowd of troublemakers gather, Lamparilla starts a song to disarm the suspicions of the Guard (Seguidillas manchegas: "En el templo de Marte"). The Walloons make ready to storm the house, despite Don Luis' entreaties, but by now the Marquesita and her friends have had the opportunity to break a hole in the wall, though to the shop next door, and thence - helped by darkness and the breaking of the street lamps - across the roofs to freedom. The act ends in confusion as the Walloons come out of the Marquesita's house, confused as to whether they should be pursuing the conspirators or collaring the rioters.
Act 3. Paloma's room in la calle de Toledo. The seamstresses working for Paloma sing as they finish sewing some skirts, ostensibly about Paloma's goldfinch, "the little bird amongst the skirts" (Coro: "Parajito que estás entre faldas".) Paloma has been kept shut up in her house since the failure of the conspiracy, and she has been unable to work for her aristocratic clients. Nevertheless, she keeps quiet about her plan to help the Marquesita and Don Luis to escape from the city dressed as majos. Lamparilla has finalised arrangements, and when the Marquesita appears in her maja costume, Paloma gives her some advice about playing her new part (Duo: "Aquí estoy ya vestida".) Don Luis is led in by Lamparilla and they all prepare to head for the countryside (Cuarteto:"Las Caleseras de Lavapiés".) Footsteps are heard, and the quartet head for Paloma's bedroom before Don Pedro and the Walloon Guards appear on the empty scene, accompanied by the mocking seamstresses. Moments later, however, the two aristocrats and Paloma are captured. Then Lamparilla (who got away across the roof) bursts in triumphantly with great news - Floridablanca has met the king and been made Minister. Don Luis, as nephew of the fallen Grimaldi, must go into exile. The Marquesita will keep faith with her fiancé and go with him, but Lamparilla and the released Paloma swear eternal love as the zarzuela ends in general rejoicing.