In Venice, young Bassanio needs a loan of 3,000 ducats so he can properly woo a wealthy heiress of Venice named Portia. To get the necessary funds, Bassanio approaches his friend Antonio, a merchant. Antonio's money, unfortunately, is invested in merchant ships that are presently at sea; however, to help Bassanio, Antonio arranges for a short-term loan of the money from Shylock, a Jewish usurer. Shylock has a deep-seated hatred for Antonio because of the insulting treatment that Antonio has shown him in the past. When pressed, Shylock strikes a frightening bargain in wicked humor: the 3,000 ducats must be repaid in three months, or Shylock will exact a pound of flesh from Antonio. The merchant agrees to this, confident in the return of his ships before the appointed date of repayment.

At this stage of the play, Portia is introduced. Due to her father's will, all suitors must choose from among three coffers -- one of which contains a portrait of her. If a man chooses the right one, he may marry Portia, however, if he chooses wrong, he must vow never to marry or even court another woman. Princes of Morocco and Arragon fail this test and are turned away. As Bassanio prepares to travel to Belmont for the test, his friend Lorenzo elopes with Jessica, Shylock's daughter (who escapes with a fair amount of Shylock's wealth in the process). Bassanio chooses the lead casket, which is the correct one, and Portia happily agrees to marry Bassanio that very night.

In contrast to this happiness, Antonio finds himself in a pinch. Two of his ships have already wrecked in transit, and Antonio's creditors -- including the vengeance-minded Shylock -- are grumbling about repayment. Word comes to Bassanio about Antonio's predicament, and he hastens back to Venice, leaving Portia behind. Portia, however, travels after him with her maid, Nerissa disguised as a lawyer and clerk, respectively. When Bassanio arrives, the loan is in default and Shylock is demanding his pound of flesh. Even when Bassanio (backed now by Portia's inheritance) offers many times the amount in repayment, Shylock, now distraught and semi-deranged with the loss of his daughter, is intent on seeking his fullest revenge. The duke, who sits in judgment, will not intervene.

Portia enters in her guise as a lawyer to defend Antonio. Through a technicality, Portia declares that Shylock may have his pound of flesh so long as he draws no blood (since there was no mention of this in the original agreement). Since it is obvious that to draw a pound of flesh would take Antonio's life, Shylock conspires to murder a Venetian citizen and forfeits his wealth as well as his loan. Half is to go to the city, and half is to go to Antonio.

In the end, Antonio gives back his half of the penalty on the condition that Shylock bequeath it to his disinherited daughter, Jessica. Shylock also must convert to Christianity. A broken and defeated Shylock accepts in a piteously moving scene. As the play ends, news arrives that Antonio's remaining ships are returned to port. With the exception of the humiliated Shylock, all will share in a happy ending.