Michaela returns and gives Don Jose a letter and a kiss from his mother. Jose reads that his mother wants him to come home and get married. Michaela leaves but promises to return for his answer to the letter. As soon as Michaela leaves, a brawl breaks out in the cigarette factory between the women and soon they run out screaming. Jose and another officer learn that Carmen was fighting with another woman about her lover and slashed her face with a knife. Carmen is asked if she has any explanation, but replies by trilling a wordless tune. The officer remarks that he is left no choice but to arrest her, but that it is a shame since she is so pretty. The women return to the factory and the soldiers back to the guardhouse. Jose is left to guard Carmen. She begins her seduction by talking about her next lover who is a "only a corporal" (hinting at Jose). Don Jose is smitten and unties her hands. When the other officers return, Jose allows himself to be knocked over by Carmen and lets her escape. .
This act successfully portrays Carmen's wanton character and lawless nature. It also shows that though Don Jose is a moral and conservative man, he is still human and corrupted by the wanton anarchy of lust and passion. Act two reconvenes in Lillas Pastia's inn (Pastia is a gypsy) with officers and gypsies relaxing after their dinner. It is about a month after Carmen's incident with the police at the cigarette factory. Carmen and her friends sing and dance for them but Pastia is trying to get rid of the officers so they ask Carmen and her friends to come with them. She rejects their offer because she is thinking Don Jose, who we learn was demoted and sent to jail because of his actions on her behalf. He was released just the day before. Here we are introduced to next critical character: Escamillo. He is a toreador passing the inn outside and is invited in. He tries to flirt with Carmen, but she tells him to not bother her.