Arms and the Man opens in 1885, inside the bedchamber of Raina, a Bulgarian woman clad in expensive furs, gazes down at the snowy landscape from her balcony. Her mother, Catherine Petkoff, bursts into the room with news of a victorious battle at Slivnitza, where Raina's fiancé, Sergius, won a great victory. She tells her daughter: "Sergius is the hero of the hour, the idol of the regiment." However, Raina's joy at the news is tempered with a moment of doubt about the truth of Sergius's heroism.

Louka, their servant, enters shortly thereafter, carrying with her an ominous warning about the potential danger the retreating Serbians represent. As night falls, Louka’s warning rings true: A mysterious Serbian soldier—disguised as a Bulgarian—seeks refuge in Raina's room. When she catches a glimps of him, Raina is shocked but soon decides to protect the fugitive, hiding him behind the curtains.

Not long after, a Russian officer arrives at the Petkoff’s home and demands entrance to search Raina’s room, asking to search for the Serbian, whom he believes is on the balcony. Raina dismisses the idea, opening the shutters to reveal a hail of gunfire. The officer, maintaining a polite demeanor, instructs Raina and her mother to withdraw as he investigates the balcony for the fugitive. The balcony is, of course, empty, but Raina’s bed is not: The soldier accidentally left his gun beneath it. Fortunately, the officer fails to notice it and continues on his way. 

Once the coast is clear, the soldier comes out of hiding to speak with Raina. During the exchange, Raina's courage contrasts visibly with the soldier’s war-weary nerves. Revealing a more vulnerable side, he confesses that he feels unnerved by the ongoing battle. As she comes to know her uninvited guest better, Raina demonstrates a conflicting mix of sympathy and disdain for him. Her feelings grow even muddier when he reveals he is a Swiss mercenary paid to fight for the Serbians, as her patriotic sentiments clash with the soldier's practical perspective. His disdain for conflict continues as he shares an idiosyncratic habit: He does not carry ammunition for his pistol, preferring instead to take chocolate into battle.

"I've no ammunition. What use are cartridges in battle? I always carry chocolate instead; and I finished the last cake of that yesterday."

Despite—or, rather, because of—his oddities, Raina is intrigued by the man's experiences. She asks him to describe the recent cavalry charge and the battle Sergius supposedly won. The soldier's account, however, exposes the folly and tragic outcome of the charge, which challenges Raina's romanticized view of heroism—and her fiancé.

"It's running away with him, of course: do you suppose the fellow wants to get there before the others and be killed? Then they all come. You can tell the young ones by their wildness and their slashing. The old ones come bunched up under the number one guard: they know that they are mere projectiles, and that it’s no use trying to fight. The wounds are mostly broken knees, from the horses cannoning together."

As the conversation continues, the soldier unknowingly mocks Raina's fiancé, whom he compares to Don Quixote. It turns out that Sergius' victory was undeserved. It was neither the result of skill nor cunning but instead luck: The Serbians were supplied with the wrong type of ammunition. What Raina believed to be her fiancé's bravery, the soldier says, was just pure luck. Soon after, Raina proudly shows him a portrait of Sergius, believing her fiancé a hero. However, the soldier immediately recognizes Sergius as the foolish and overly zealous commander of the cavalry charge.

Despite Raina's initial disdain for the soldier, she gradually shows a more compassionate side, especially when she learns about his exhaustion and lack of sleep. The soldier, in turn, begins to appreciate Raina's kindness. Raina devises a plan to help him escape safely through the house, using her family's high social standing as a shield. The soldier is worn out but determined and agrees to the plan. Raina prepares to inform her mother about the situation. In the meantime, the soldier catches a few moments of sleep in Raina's bed.

Soon after he falls asleep, Catherine enters the room unexpectedly and is scandalized to find the soldier asleep in her daughter's bed. Despite Raina's plea to let him rest, Catherine reacts with disbelief, addressing her daughter with stern amazement at her sympathetic attitude towards the exhausted intruder. The act closes with the soldier in a profound slumber, unaware of the tension pervading the room.