Scene 2:

A mountain scenery. Residence of the Gods. Fricka shows Wotan the citadel, Walhall, which the giants have built for him in exchange for the goddess Freia. When the giants come to claim Freia, Wotan refuses to extradite Freia to the giants and hopes for a quick return of Loge to help him. Eventually Loge arrives at the scene. He recounts that the Nibelung Alberich, has found something more valuable than women and love; the Rhinegold. Loge now has the attention of the giants, they are prepared to exchange Freia for the gold. The giants take Freia as security and leave for their home in the mountains, promising to be back by evening to claim the gold of the nibelung. Without Freia the gods loose their eternal youth because they miss her golden apples. Together with Loge, Wotan descends to Nibelheim.

Scene 3:

Nibelheim, residence of the Nibelungs. Mime forges the Tarnhelm for his brother Alberich. Alberich puts on the Tarnhelm and promptly becomes invisible. Mime receives a severe beating by his invisible brother, who laughs in glee. Wotan and Loge arrive.

Alberich shows off, by telling them he will dominate the world, with the power of the golden Ring he has forged. Loge uses Alberich's vanity, and challenges him to use the Tarnhelm to change into something that will astound him. Alberich quickly transforms himself into a giant serpent. When he regains his ordinary form again, Loge expresses his wonder about his cunning shapeshifting. But can he also transform into something small? Alberich changes again, this time into a toad. Wotan quickly seizes the toad and thus Alberich is captured.

Scene 4:

A mountain scenery. Residence of the Gods. Alberich has been caught. For his release, Alberich must pay with the treasure, which the Nibelungs have dug up. Alberich consents and with his Ring of power summons his subjects to bring up the gold from Nibelheim. Loge also demands the Tarnhelm. Finally Wotan seizes the Ring of power, leaving Alberich in a state of utmost dismay. As soon as Alberich is freed, he curses the Ring and its possessor until the Ring returns to him.

The giants arrive with Freia and demand the gold. They only want to exchange Freia for as much gold as is needed to totally conceal Freia from sight. After the complete treasure has been piled up, Fasolt catches a glimpse of the beautiful goddess Freia and demands that the breach is stopped with the Ring on Wotan's finger. Wotan refuses with indignation, he does not want to give up the Ring of power. The all-knowing mother Erda, rises from the ground to warn Wotan to give up the Ring and thus avert his end. Wotan heeds her advice and gives the Ring to the giants. In his greed Fafner clubs his brother Fasolt to death and leaves with the Ring, the Tarnhelm and the treasure. The gods watch in horror as Alberich's curse claims its first victim.