It is 11:15 p.m. on a summer evening in Covent Garden, and rain is coming down in torrents. A mother is taking shelter under the portico of St. Paul’s Church with her daughter while her son tries to find a cab to take them home. Mother, son, and daughter are all of upper-class appearance and wearing evening dress. At this time, none of the characters are named. Their names appear in the script after being mentioned in dialogue. They are, in fact, Mrs. Eynsford Hill, her son, Freddy, and her daughter, Clara.

Freddy has failed to find a cab and is rushing away to try to find one in the Strand when he bumps into a flower seller, scattering the contents of her basket over the pavement. She remonstrates with him angrily. Shaw at first attempts to reproduce her dialect phonetically, using the Roman alphabet (“Ow, eez ye-ooa san, is e?” for “Oh, he’s your son, is he?” etc.), but quickly gives up, explaining that this method of trying to represent the sound of her accent must be “unintelligible outside London.” Mrs. Eynsford Hill gives the girl sixpence for the flowers, much to Clara’s disgust.

The girl tries to sell a flower to a gentleman standing nearby, but a bystander points out to her that there is a man with a notebook who appears to be writing down their entire conversation. By this time, a crowd has gathered. Most of them, including the girl, assume that the notetaker is a police agent. This arouses their hostility, and the girl vociferously protests that she has harmed no one. 

The general suspicion only increases when the notetaker identifies what part of London all the bystanders come from. They challenge him to try the same trick with the gentleman, thinking that he will not dare to “take liberties” with a member of the upper classes. The note taker, however, promptly identifies the gentleman with the words “Cheltenham, Harrow, Cambridge, and India,” meaning that he comes from the town of Cheltenham, was educated at Harrow School and Cambridge University, and has since lived in India. The gentleman confirms that the notetaker is correct and asks him if he does this for his living at a music hall.

The rain stops, and everyone leaves the church portico except the notetaker, the gentleman, and the flower girl. The notetaker then explains that he was able to identify the origins of the gentleman, the flower girl, and everyone else through his knowledge of phonetics, the “science of speech.” He has made a particular study of London dialects and can place any Londoner within two miles, “sometimes within two streets.” He explains that he makes his living by teaching people of low social origins who have made a lot of money to speak the upper-class English appropriate to their new station in life. He boasts that in three months, he could teach even the flower girl to speak such perfect English that he could pass her off “as a duchess at an ambassador's garden party” or even get her a job in a flower shop, which would require even better English.

It transpires that the notetaker is not only of the same social class as the gentleman—the two also share an interest in phonetics and are aware of each other’s work. The gentleman is Colonel Pickering, author of “Spoken Sanskrit,” and the notetaker is Professor Henry Higgins, author of “Higgins’s Universal Alphabet.” The two men quickly become friends and go to the Carlton Club, where Pickering is staying, to have supper together. As they leave, the flower girl (who still has not been provided with a name–the audience has to wait until act 2 to learn that she is Eliza Doolittle) asks Pickering to buy a flower, saying that she is short of money for her lodging. Higgins calls her a liar, pointing out that she previously claimed to be able to change half a crown (two shillings and sixpence in pre-decimal coinage, when a pound or “sovereign” was twenty shillings).

Eliza is furious with Higgins and flings her flower basket at his feet. As she does so, the church clock strikes, and Shaw’s stage directions explain that Higgins hears in this “the voice of God, rebuking him for his Pharisaic want of charity to the poor girl.” He throws a handful of coins into her basket as he and Pickering depart. Eliza is astonished to find that Higgins has thrown quite a large sum of money into her basket, including a half-sovereign (ten shillings)—an amount it would normally take her at least a couple of days to earn by selling flowers. At this point, Freddy Eynsford Hill finally returns with a cab, only to find that his mother and sister left some time ago when the rain stopped. However, Eliza decides to use a fraction of her newfound wealth to take the cab home and grandly tells him that she will take it off his hands, leaving Freddy feeling quite bewildered.