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The Sultan of the Indies has three sons, Hussain, Ali and Ahmed. His niece, Princess Nouronnihar, is old enough to marry, and the three princes each want to marry her. The Sultan declares a contest, and all three go traveling to find the most wonderful item they can. Hussain buys a magical flying carpet. Ali finds an ivory telescope that lets him see anything anywhere. Ahmed finds an apple that can cure any illness. The brothers reunite and compare their gifts, but Ali looks through his telescope and sees that Nouronnihar has fallen ill. They use the carpet to go home, and Ahmed uses his apple to cure her. However, afterwards no one can decide which prince should marry her, as they were all instrumental to curing her. The Sultan declares an archery contest. Ali's arrow flies the farthest, and he wins Nouronnihar's hand.

Ahmed's arrow, however, cannot be found, and he goes looking for it. He winds up at a mysterious cave, where there lives a beautiful lady named Paribanou with all of her servants. They fall in love but Ahmed returns home to his father, who believes that he is dead after all this time. Paribanou instructs Ahmed not to tell anyone about her. Ahmed makes regular visits to his father, but people at court grow suspicious of his obvious wealth and prosperity, and encourage the Sultan's jealousy. A sorceress goes to spy on the prince and find out where he lives. When she can't get into the cave, she pretends to be ill, and he takes her inside. Paribanou realizes immediately that the sorceress is shamming. The sorceress, having seen the fairy's amazing palace, returns to the Sultan and suggests that Ahmed and his wife may try to dethrone him.

As an excuse to imprison Ahmed, the Sultan demands he bring him a tent small enough to fit in a man's hand but large enough to house an army; a magical healing water from a fountain guarded by fierce lions; and a man one and a half feet high, with a thirty-foot-long beard and a huge iron staff. With Paribanou's help, Ahmed retrieves all of these things. The dwarf with the long beard is Paribanou's hideous and fearsome half-brother, Schaibar. When Schaibar arrives at the palace, the Sultan recoils from him, so Schaibar kills him, the sorceress, and most of the people of court with his iron bar. He then sets up Ahmed as the new sultan.

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