The Red Shoes opens in an opera house, where a music student named Julian is present to watch the fictional ballet Heart of Fire. Julian's teacher, Professor Palmer, has written the score for the ballet; as he watches, Julian realizes that the professor has stolen some of the music from his own compositions. After the show ends, Julian leaves, indignant, while Professor Palmer meets with Boris Lermontov, the ballet company's director, at an after-party hosted by Lady Neston, an aristocratic woman whose niece, Victoria "Vicky" Page, wants to dance for Lermontov's company. Lady Neston suggests that Lermontov should meet her niece, an invitation that he declines somewhat impolitely. Later, he complains to a young woman at the party that he was vexed by Lady Neston's request; the woman turns out to be Vicky. He asks why she wants to dance, to which she cleverly responds: "Why do you want to live?" Impressed by her passion for the art, Lermontov agrees to let Vicky rehearse with his company.
The next morning, Julian has written to Lermontov, explaining that Heart of Fire was plagiarized from his own work, but frantically tries to retrieve the letter as soon as it has been mailed. Desperate to intercept the letter before Lermontov can read it, Julian arrives at Lermontov's hotel, only to find that he had already read it. Julian performs a piano composition for Lermontov, proving that he was the true composer of Heart of Fire, and earning him an invitation to work for the Ballet Lermontov.
Julian and Vicky begin their new jobs the same day, each immediately impressing Lermontov with their mastery and dedication to their respective arts. When he realizes their potential, Lermontov involves Vicky and Julian to tour with the Ballet Lermontov. During the tour, Irina Boronskaja, the company's prima ballerina, gets engaged. Lermontov responds angrily, dismissing her from the company—he assumes that there can only be room in one's life for dance or romance, but certainly not both. Following the dancer's dismissal, Vicky ascends the company ranks.
When the company arrives in Monte Carlo, Lermontov announces a forthcoming project: a ballet adaptation of Hans Christian Anderson's The Red Shoes, in which Vicky will star and Julian will provide the musical score. One evening in Monte Carlo, Julian encounters Vicky, and the two bond over their new roles in the upcoming production. They begin to fall in love, but attempt to keep their relationship out of Lermontov's view. Increasingly obsessed with controlling Vicky, Lermontov accidentally stokes her relationship with Julian by demanding that he play the musical score for her every day while she eats her meals. They continue to bond as they rehearse for the upcoming debut of The Red Shoes.
The first performance of the finished ballet is shown in full, a 15-minute diversion from the film's main narrative thread in which the audience watches The Red Shoes—the ballet within the film—as though they were in attendance at the performance. In the ballet, a young woman admires a mysterious pair of red pointe shoes, which she soon learns are endowed with magical powers: when she wears them, she gives the most stunning dance performance of her life, but she cannot take them off, so she dances in them until she eventually dies of exhaustion.
The ballet is instantly a hit. Capitalizing on this fame, Lermontov promises Vicky that he can make her a prima ballerina, but with a catch: in exchange for fame and celebration, she must yield control of every aspect of her life to Lermontov. Of course, a romance with Julian is not within the purview of Lermontov's plan. He eventually learns of Vicky and Julian's romance one night at the birthday dinner for Grischa Lubov, the male principal dancer: the pair are suspiciously absent, taking a romantic carriage ride together instead of attending the birthday dinner.
Lermontov is incensed when he learns of Vicky and Julian's relationship. He derides Julian's new compositions, expressing dissatisfaction with his latest score and insisting that it be scrapped. Julian resigns angrily, further stoking Lermontov's outrage. He demands that Vicky either leave Julian or leave the company, insisting, as with Irina's earlier dismissal, that she must choose between her love of dance and her love of Julian. In response to Lermontov's ultimatum, Vicky leaves the company and marries Julian. Lermontov never gives up his conviction that Vicky will one day return and dance for him once more.
Back on tour, Lermontov invites Irina to return as his prima ballerina, but his obsession with Vicky never dies out. One day, he learns that Vicky will be in town, on vacation with her aunt while Julian stays in London to prepare for the opening of his first opera. He finds and accosts Vicky, begging her to return and dance The Red Shoes one more time. Finally, she accepts the invitation, lamenting how badly she has missed dancing since her departure from the company. While Vicky prepares to perform, Julian learns that Lermontov has coaxed her into dancing with the company again, growing angry as he interprets her agreement to mean she will leave him.
Just as Julian's opera performance is scheduled to begin, a radio broadcast, heard in Vicky's dressing room, alerts her that he has fallen ill. Suddenly, he appears in her dressing room. She desperately attempts to undo the misunderstanding, trying to explain that she only capitulated because she loved ballet, not because she no longer loved him. However, before she can properly express herself, Lermontov enters, taunting Julian with the fact that Vicky has apparently chosen dance—and, by extension, Lermontov himself—over their marriage. It is then Julian's turn to offer an ultimatum: either Vicky can leave with him before the performance and run away to begin a new life together, or he will end their marriage.
Unable to choose between the two loves of her life, Vicky breaks down in distress. Julian leaves, angry at her apparent ambivalence. Lermontov takes a moment to brag about his victory before leaving to introduce the production. In costume, Vicky throws herself off a balcony, onto the tracks of the train that would take Julian home. It is unclear whether this is a suicide, prompted by the loss of Vicky's true love, or an act compelled by the red pointe shoes that Vicky wears in her costume, as in the fairytale. Julian rushes to her side, performing one final act of devotion: as she dies, he removes the red shoes from her feet.
Lermontov hears of Vicky's death just as he begins to introduce the performance. He announces that, while Vicky will not dance that night or ever again, the ballet will be performed one final time, without her or any understudy in her place, as "she would have wished it." An eerie performance results, as a single spotlight underscores the emptiness of the stage in her absence.