Part 1, Act 1The Life and Adventures of Nicholas Nickleby briefly outlines the reasons that Nicholas Nickleby, his sister Kate, and their mother travel to London— because of the father's death—and then portrays a town meeting wherein a large muffin company ousts private ‘‘muffin boys’’ through a ruse of guaranteeing lower muffin prices to help the poor. Surveying the selling of the new company's stock is Nicholas's parsimonious uncle, Ralph Nickleby, to whom the now-destitute relatives turn for assistance. Ralph places Nicholas as an assistant in Dotheboys Hall, a Yorkshire boarding school, and Kate in a milliner's shop, coldly splitting them apart. Kate and Mrs. Nickleby move out of their temporary lodgings with the kind portrait artist, Miss La Creevy, and into one of Ralph's sparsely furnished rental homes. Nicholas is skeptical of the one-eyed schoolmaster, Mr. Wackford Squeers, with his appalling lack of knowledge and his gruff treatment of the charges, most of whom are illegitimate or disfigured. Nevertheless, Nicholas dares not question his employer until Squeers starts to beat Smike, a severely limited student whom Nicholas has befriended. In a fit of rage, Nicholas strikes Squeers, and Smike is able to make a getaway. Then Nicholas, too, departs, and Mrs. Squeers tends to her husband. Nicholas runs into John Browdie, a neighbor engaged to a friend of Squeers's daughter Fanny. John gives Nicholas a bear hug for beating the schoolmaster. Smike and Nicholas take the road back to London. Fanny writes a letter to Ralph Nickleby condemning Nicholas as having ruthlessly attacked both of her parents. In the meantime, Kate has been taken in by Madame Mantalini and her crew of milliners. Because she is young and pretty, Kate works with Miss Knag in the shop itself, awkwardly helping rich, spoiled, young women try on hats. Miss Knag befriends the young newcomer.
Part 1, Act 2 Newman Noggs, secretary to Ralph Nickleby, reads Fanny's letter and then goes to visit his downstairs neighbors, the Kenwigs. This family has three daughters and an infant named Lillyvick, named after Mrs. Kenwigs' uncle, a water-rate collector. Mrs. Kenwigs is obviously expecting another child. The family panders to Uncle Lillyvick, for he holds the key to their salvation, if he chooses to leave his inheritance to their girls, which will provide them with a reliable means of subsistence. Nicholas visits Noggs and tells him about his encounter with Squeers and then searches for new employment, temporarily acting as French tutor to the Kenwigs children. His mother does not know whether to believe her son or Ralph about Nicholas's attack of Squeers. However, Kate, who has by now replaced Miss Knag in the milliner's shop and incited her jealousy, has complete faith in her brother. He and his sister embrace, and he leaves with Smike for Portsmouth to find some means of supporting them all. Along the road, they meet the Crummles theatrical family, headed by Mr. Vincent Crummles and featuring the Crummles sons and daughter, otherwise known as the Infant Phenomenon, a girl of fifteen who has been playing a ten-year-old for at least five years. Nicholas signs on to write a new piece for the company, for a weekly rate of one pound, and ends up playing Romeo, while Smike joins the troupe as the Apothecary. In the audience, Uncle Lillyvick falls in love with the actress Miss Petowker, and they marry, leaving the Kenwigs without a benefactor.
Madame Mantalini's business is about to be foreclosed, due to her husband's profligate ways. When she visits Ralph Nickleby for help, she discovers her husband trying to cash in some outstanding accounts...
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he has stolen from her. She announces her intention to separate from him and says that she has taken steps to put the shop into Miss Knag's hands, a clever way to keep the shop from devolving to her husband, since a married woman cannot own property. Miss Knag now employs Madame as manager, and Mr. Mantolini is left in the cold. It is revealed that Ralph Nickleby had engineered the foreclosure and then stood ready to advance the money to salvage the shop, at a profitable rate of interest. With Miss Knag in charge, however, Nickleby's backing will no longer be needed, but Kate is fired.
The poisoning scene of Romeo and Juliet, beginning with the line, ‘‘Who calls so loud?’’ is played in tandem with the revelation that Ralph has arranged to have Kate act as hostess for a party at his house, where he will entertain several gentlemen with whom he does business. Smike's line, ‘‘My poverty and not my will consents'' takes on added significance when applied to the juxtaposed scene of Kate having to fulfill her uncle's request despite her misgivings. She soon discovers that she is the evening's entertainment, when Sir Mulberry Hawk tries to seduce her. Ralph sees her to a carriage and realizes the terrible mistake he has made. He admonishes Hawk, but the latter aptly points out that Nickleby would have turned a blind eye had Lord Frederick Verisopht fancied the girl. In the meantime, Nicholas and Smike participate in a fantastically modified happy ending to Romeo and Juliet, in which, miraculously, almost everyone survives.