The scene is outside "The Three Pigeons" inn where Jacques and some villagers are dicussing the strange old lady who is staying at the inn. The miser Boomblehardt arrives. He has been out collecting rents from his tenants and shows his gold to the villagers. He asks after Martha, the landlady, and is told that she is trying to turn out the strange old lady who arrived six weeks previously and refuses to pay any rent. This is substantially cutting into Martha's profits. Martha then arrives having failed in her mission. Even denying the old lady food and water has failed to encourage her to leave. Martha is convinced that she is a fairy.

Just then Pippett, Martha's very shy niece arrives and announces that Sergeant Klooque, hero of Johannesburg, is arriving the inn on leave. He duly arrives explains he may now flirt with any lady he chooses, without the need to pretend they are his relatives in order to get around his tyrannical Colonel. The Sergent suggests they tackle the old lady in turns.

Peter volunteers to go first. He may be a coward, but he is not so cowardly as to fear an old woman, nor superstitious enough to believe in her power, He threatens the old fairy, trying to chase her away. The old lady responds by casting a spell on Peter that forces him to threaten anyone he meets. He runs off before he can get himself into trouble by threatening anyone bigger than himself, calling out challenges as he goes.

Sergeant Klooque next approaches the old woman next and tries to use his military charm to win her over. It turns out that she hates soldiers, and she strikes out with her stick, making him duck and dodge. She then casts a spell to make him duck and dodge whenever he meets someone so taht he will lose his reputation and be branded a coward.

Pipette arrives and watches his behaviour in astonishment. "He's showing you how he fought the enemy at Johannesburg," exclaims the old lady, but he replies "No, my dear!" I'm showing you how the enemy fought us. This is the way they retreated". He leaves, ducking and dodging and begging his imaginary attackers to stop as he goes.

Pipette then tries to coax the old lady into leaving, kissing and hugging her, and appealing to her (hoped for) better nature. The old lady sees through her attempt, and in punishment for her "telling stories" casts a spell compelling Pipette to kiss and cuddle every one she meets. She cries out in protest that she's too shy for such behaviour, but the old lady assures her that she'll "get over [her] shyness after a year or two of that sort of thing". Boomblehardt approaches next, and Pipette flings herself on him, crying "Kiss me!". He obliges. She responds, "How dare you take such a liberty! You insolent old man! Kiss me". And so he does. She boxes his ears, much to his confusion, and then retreats into the inn in tears.

Boomblehardt then meets with the old woman. The miser has heard that the strange old lady does not need to eat and offers to help her stay at the inn if she will teach him her secret of how to avoid wasting money on food. He offers her a golden guinea. The fairy decides that somebody as miserly as that needs tobe punished and casts a spell on him compelling him to give out guineas to everyone he meets.

Chaos soon ensues. Boomblehardt finds Sergeant Klooque's curse hilarious and decides that if he must give out money, the sergeant is as good a recipient as any other. The shy Pipette throws herself at the sergeant, who unwillingly ducks and dodges, trying to avoid her. When Peter arrives, he is forced to get into a fight with the sergeant over her, at which, to his surprise, the brave sergeant cowers, dodges, and ducks. Boomblehardt continues passing out guineas, his fortune dribbling away. Then Martha chases her customers out of the inn with a broom: she too has been cursed. Everyone has fallen under the fairy's ironic curses, forced to behave in a manner contrary to his or her intrinsic nature.

The old lady emerges from the inn to see the effect of her spells, and the cursed group all rush on her and hustle her. They all behave as compelled by their curses: Peter threatens her, Pipette tries to kiss her, the sergeant ducks away from her, the miser offers her money, and the landlady keeps trying to chase her out with a broom. The chaos is too much for the old lady and she is forced to release them from the spells explaining that she can manage them separately, but that altogether they are too much for her. Sulkily she agrees to leave.