The garden of the Tsar´s governor-general in Pskov, Prince Yuri Ivanovich Tokmakov. The maidens are amusing themselves, watched over by their nurses. Princess Olga, however, is left unmoved by her friends´ games and songs. She dreams of meeting her beloved, and is awaiting news of him.
The nosy Perfilyevna tries to wheedle out of Olga´s nurse if it is true that Olga is not a prince´s daughter. Vlasyevna speaks of Novgorod: Tsar Ivan became angry at the free city and together with his oprichnina came and slaughtered indiscriminately and mercilessly: Styosha, Olga´s friend, secretly tells her that Mikhailo Tucha will be in the garden in the evening to see Olga. The nurses take the maidens into the tower-chamber.
Olga comes into the garden, but her joy of seeing her beloved is short-lived. The Princess has been promised in marriage to the noble boyar Matuta, and it is not for Mikhailo Tucha, the son of a poor governor, to act as a rival. Mikhailo tells Olga of his decision to depart for Siberia and, when he returns rich with furs and silver, to ask her hand from Prince Tokmakov. But Olga persuades her beloved to stay, and promises Mikhailo she will beg her father not to give her to Matuta. Tokmakov and Matuta come out from the tower. Mikhailo Tucha hides, and Olga slips into the garden, overhearing her father´s conversation with Matuta. Tokmakov says he is not Olga´s natural father. Her mother was the noblewoman Vera Sheloga, the Prince´s dead wife, and her father is unknown.
Bells ring out – the alarm for the townspeople to assemble. The Prince and Matuta depart. Shocked, Olga takes the bells as the death knell burying her happiness.
Alarm bells continue to ring. The people gather on the square.
The horseman Yushko Velebin brings the news – proud Novgorod has fallen and Tsar Ivan Vasilievech is marching on Pskov. Worry and panic seize the people. Prince Tokmakov tries to calm the people – Pskov has nothing to fear, with their faith and truth the townspeople serve their native land well. And so they must meet the Tsar in peace and hospitality. The young people of Pskov, headed by Mikhailo Tucha (a freeman of the town), do not wish to submit to the Tsar. They call on the people to demand independence. The freemen take up the bold song of their leader and leave the town. In fright Matuta asks Tokmakov to call the streltsy to deal with the unruly. Tokmakov refuses indignantly. The alarm bell continues to sound.
The people of Pskov are waiting for Tsar Ivan, setting the feast tables.
Olga and her nurse appear. The Princess admits that she has heard the conversation of her adoptive father with Matuta and bemoans the fact she is an orphan. Olga is sad, but she is also gripped by some strange feeling. Impatiently Olga awaits the Tsar.
The bells ring louder, Tsar Ivan Vasilievich himself appears on the square. The people drop to their knees in prayer for forgiveness.
Ivan the Terrible at the entrance to Prince Tokmakov´s chamber. "To enter nor not" he asks of the Prince, deciding the town´s fate. Tokmakov answers with a deep bow. The Tsar is led to the place of honour. Knowing the Prince has a daughter, the Tsar wishes her to bring him his bowl. Olga enters, followed by Styosha and the other maidens carrying food. When Olga raises her head to present the Tsar with his bowl, Ivan the Terrible recognises the features of the woman he once loved – Vera Sheloga. Stunned, with difficulty the Tsar manages to hide his unease and confusion.
Left alone with Tokmakov and asking who was Olga´s mother, Ivan understands he has met his own daughter. This is like a sign to him and he pardons rebellious Pskov: "May the murders cease! Too much blood: Let us blunt our swords on stone. May God bless Pskov!"
A wood close to Pechery Monastery. The maidens are off to pray. Olga remains behind to meet Mikhailo Tucha. Olga hopes to beg forgiveness for her beloved from the Tsar, but Tucha refuses to kneel before Ivan the Terrible and calls on Olga to leave her native lands. She agrees without hesitation. Nothing now links her with Pskov.
Suddenly Matuta appears. He has followed Olga. His serfs wound Tucha and carry off the young girl.
The Tsar´s headquarters near Pskov. Tsar Ivan cannot sleep. Meeting his daughter has awoken memories of his past youth. But his thoughts are once again brought to affairs of State. He wishes to see Russia unified under one mighty ruler.
The Tsar´s thoughts are interrupted by Prince Vyazemsky. He has taken Matuta who had kidnapped Olga. In fury, the Tsar is ready to kill Matuta, but the latter declares he took the Princess while she was with "the enemy of the Tsar´s will" Mikhailo Tucha. The Tsar orders Olga be brought immediately. Ivan Vasilievich wished to take Olga to Moscow with him and imprison Tucha.
Tenderly Olga softens the Tsar´s heart: from childhood she was wont to pray for him, loved him always, like her own father. Ivan the Terrible is ready to admit to his daughter that he is in fact her true father, but close to the tent the freemen´s song is heard – it is Mikhailo and his men come to free Olga. The furious Tsar orders the rebels be killed and Tucho be taken alive. Olga, who has heard her beloved´s words of farewell, runs from the tent. Gunfire is heard. All the assailants lie dead.
The body of Olga, shot by a rogue bullet, is brought to the tent. In despair, Ivan Vasilievich calls the apothecary Bomely, but Olga is already dead. The inconsolable Tsar bows over his daughter´s body.