The movie opens with a raging desert battle between the cities of Basra and Baghdad, during which Basran, the father of Harun, is fatally wounded. Before he dies, he gives his son a medallion he has pulled from his killer's neck, and urges him to somehow end the senseless killings. Harun rides to Bagdad, where he meets the beautiful Khairuzan, who tries to sell clothes to shopkeeper Barcus. He bargains with Barcus that for 10 dinars, he can pick any item in the shop. Under a pile of rags, he finds a golden sword that seems to somehow call him. Khairuzan ignites a riot when she defends the citizens of Basra. Barcus watches in awe as Harun cuts solid metal in half with his golden sword. As soon as soldiers appear and spirit Khairuzan away, the fighting stops, and Harun finds a medallion on the groundidentical to the one his father gave him. Barcus discovers that the sword will cut through iron only when Harun wields it. He warns Harun to be careful until they can translate the inscriptions on its blade and discover all its powers. Meanwhile, in the palace, sinister Vizier Jafar urges Badgad's Caliph to fight Basra, but the Caliph refuses. Khairuzan, who is in fact the princess, is soon brought in by her guard, Jafar's dim-witted son Hadi. Jafar convinces the Caliph that Khairuzan's headstrong ways may be tamed by marriage to his son, then later plots with Hadi to undermine the Caliph by inciting more battles against Basra. When Khairuzan learns of the arranged marriage, she escapes again and disguises herself as a boy. Harun is waiting outside for an audience with Jafar, and when the guards spot Khairuzan, she steals Harun's horse. She is finally caught by both Hadi and Harun, who begin a fight which Harun wins. He discovers that he is actually invincible while wielding the golden sword. Khairuzan claims to be a boy slave and Harun brings her to the city, where she eavesdrops as Barcus reveals that the sword's first inscription promises that whoever unsheathes the sword will gain the throne. Later, Harun, realizing that Khairuzan is a girl, protects her when a guard questions them, and they are both thrown to the dungeon, where they fall in love and kiss. After a minor quarrel, Khairuzan makes herself known to the guards and moves back to her harem. Knowing of the sword's magical powers, she declares that only the winner of a tournament may claim her hand. She names Harun as her guard, and although he is infuriated to discover she is a princess and he her servant, he later watches admiringly as she is very kind to the poor townspeople. Meanwhile, Khairuzan's handmaiden, Bakhamra, informs Hadi about the magic sword, and he and his father steal it by creating a replica and then drugging Harun in order to switch the two. Khairuzan wakes Harun from his stupor and later asks him why he has not yet signed up for the tournament. When she disagrees with his response that he is not aristocratic enough to marry her, he kisses her. He then races to Barcus to proclaim his newfound joy, and refuses to listen when Barcus warns him that the second inscription counsels that the bearer's true reward will arrive in a grave of stone. At the tournament, Hadi tampers with Harun's saddle. Quickly, all but Hadi and Harun are eliminated from the contest, and Hadi finally wins by throwing Harun from his saddle. Harun realizes his sword was switched and suspects Khairuzan. He breaks into the palace and finds Bakhamra, who has just been jilted by Hadi and so reveals his scheme to Harun. Harun locates Hadi just as he is about to bring his unwilling bride to bed, and fights with him. He is captured by Hadi's guards and brought before Jafar. Bakhamra and the Caliph overhear the vizier plan to kill them and blame Harun. When the Caliph orders Jafar arrested, the vizier brings out his medallion, which is the same as the one Harun carries, and tries to kill the Caliph with the magic sword, but it slices into a stone pillar and remains stuck there. The guards kill the Caliph, but Harun and Khairuzan escape by fooling the guards into believing they have died. Jafar and Hadi soon discover that they cannot pull the sword out of the column and call men in from across Bagdad to attempt to pull it out. While Khairuzan gathers the townspeople around her, Harun and Barcus sneak back into the palace. Harun fights with the guards and is almost captured when Khairuzan rouses the people to storm the palace. He grabs the sword from the stone, causing it to collapse on top of Jafar and Hadi. Khairuzan bestows on Harun the title Al-Rhashid. Then they kiss.
