The film opens on a train conducted by Lucifer carrying condemned souls back to Heaven. As they near, the damned begin to involuntarily sing hymns and Ms. Merrywood finds a horseshoe-shaped pendant ("Shovel and Bone"). In Heaven, God discusses the crisis with his favorite angel, The Agent, as Ms. Merrywood is interrogated by the sadistic Translators about her presence and the pendant. In Hell, Ticket Keeper comes to Lucifer with his misgivings about the carnies' lack of discipline and Lucifer's reticence to discuss his plans, but Lucifer dismisses him on the entrance of a cloaked figure. He opens a book entitled "The Filly and the Lapdog" (patterned on Aesop's fable "The Ass and the Lapdog") and begins to read. The story begins with a new crop of "applicants" being introduced to Heaven ("All Aboard (Everybody's Doing the Ark")), including best friends rebellious June and reserved Cora. On a tour of Heaven, June defies The Librarianby asking about banned books, then (dragging Cora with her) shys away from the licentious Designer (Only by Design), leading to Cora and June's arrest and torture by The Translators ("Good Little Dictation Machines"). This is interrupted by The Agent due to his attraction to June, which gets him negative press from The Watchword. When God hears about this, he instructs The Agent to seduce June to expose her heresy while testing his loyalty, and he takes her to a bar, where his favor with God leads to him being invited on stage to perform ("Down at the Midnight Rectory"). God interrupts the performance, frightening the patrons, only to put them at ease with a performance of his own ("Cloud Serenade"). The relationship between June and The Agent continues, surreptitiously monitored by The Watchword ("The Watchword's Hour"). The Agent gives June the horseshoe pendant Ms. Merrywood will later find, telling her the story of a blacksmith coercing the Devil into avoiding homes with horseshoes. This reignites June's curiosity on the contents of the banned books and, confident The Agent's clout will save her despite his objections, she runs to the library to steal one, setting off an alarm. She pleads for The Agent's help, but he refuses. The alarm wakes Cora, who tries to come to June's side, but is scared away by The Watchword warning her that her lesbian attraction to June is illegal. June is beaten bloody by The Translators and thrown onto an elevator to Hell, as the Librarian leads Cora and the other applicants in denouncing her ("Hitting on All Sevens"). The Librarian informs Cora that she will go very far in Heaven. Lucifer pauses to attack God's and God's followers' tendency to only tell the parts of a story that serve their purpose, and continues. June arrives in a weaker Carnival, with a younger Lucifer and Ticket Keeper. She encounters the shapeshifting Twin and asks to drink from his flask; he agrees provided that she play a shell game for her pendant. As the game goes on, the Twin transforms into Cora, The Agent, and a copy of June (Fair Game). Upon losing, she runs to Lucifer, who helps her transform into The Painted Doll, inspiring him to remake the Carnival into something capable of challenging Heaven ("After the Fall"). In the present, the cloaked figure reveals herself as The Painted Doll, and is sent to play her role in Lucifer's plan. The Ticket Keeper reenters and restates his concerns, offering to sacrifice himself for Lucifer if necessary. Lucifer rebukes him, and they decide to face defeat together if the war turns against them. Lucifer finally offers to tell Ticket Keeper his plan. In Heaven, God sends The Agent to Hell with a package to be opened on the elevator, dismissing his concerns for his safety, but inspired by those concerns to claim falsely to be purposefully allowing Lucifer's trains; he then puts on a show mocking Lucifer in a parable drawn from the Dust Bowl and Aesop's fable "The Swallow and the Other Birds" ("Bells of the Black Sunday"). During the song, it is revealed that Cora is no longer an applicant, and is now the lead singer of His Ladies of Virtue, a musical trio that sings with God (she took the position fromGeraldine, who was kicked out and had her face mutilated after not acting happy enough when she was "promoted" to being God's sex slave). The Agent sees on the elevator that the package contains a copy of "The Filly and the Lapdog". The Agent realizes that God knows he won't be safe in Hell because of his past treatment of June, but sent him down anyway. He arrives in Hell to be greeted first by The Smith, who nails a horseshoe to the roof of his shed, then by The Painted Doll, with whom he attempts to reconcile. She leads him on in order to give the carnies a chance to capture and poison him (Hoof and Lap/The Devil's Carnival). In Heaven, Ms. Merrywood is revealed to be The Twin, now posing as The Agent returning from his mission. As the credits roll, "The Agent" serenades God (Songs of Old).