After Sabu, a lowly stableboy in the Caliph's palace in Samarkand, is accused of stealing a valuable diamond from the headdress of the Caliph's favorite elephant, he searches for it and finds, instead, an old ring. Sabu decides to give the ring to his girl friend, Zumeela, who sells fruit in the marketplace. Together, they visit Abdul, a storyteller, who is telling a group of children about a rich, old king who owned a tarnished, apparently worthless, silver ring. When the king rubbed the ring, however, a genie appeared and granted his every wish, making the king very powerful. Sabu tries rubbing his ring and a giant genie, Ubal, appears and performs some rudimentary tasks for his new master. Meanwhile, Sabu's supervisor, Kemal, reports to Muzafar, the prime minister, that he has sold the missing diamond to help finance their plot to kill the Caliph and assume his throne. When Muzafar learns of the ring's existence and orders a slave to steal it from Sabu, Ubal outwits him and prevents the theft. Even though Sabu is captured and whipped by Muzafar, he refuses to reveal the ring's hiding place, prompting Yunan, a magician who has been banished by the Caliph for practicing black magic to offer his services to Muzafar. Sabu is freed by Yunan and Muzafar, who then follow him as he attempts to find Zumeela. After Muzafar and Yunan kidnap Zumeela and put her in a trance, Sabu rescues her with Ubal's help. Later, Sabu and Zumeela overhear Muzafar and Kemal plotting to hasten the Caliph's demise by poisoning his food. Sabu loses the ring when it is swallowed by a goose, which then joins a flock of geese. After grabbing what he hopes is the correct goose, Sabu and Zumeela hide from Muzafar's soldiers in a tunnel that has been revealed to them by an old fakir. The Caliph, meanwhile, informs Muzafar that he has decided that, upon his death, Samarkand will join with neighboring city Damascus and be ruled by that city's Prince Achmed, whom he has invited to visit him. Muzafar immediately orders assassin Phransigar to assemble a group of men to intercept the prince and kill him. Upon learning that there is a reward for Sabu and Zumeela, the fakir attempts to hold them captive in the tunnel, from which the goose has escaped. Before leaving, however, the goose has laid an egg, which falls from a ledge, breaks over Sabu's head and reveals the ring. Zumeela takes the ring and immediately summons Ubal, who releases them. Zumeela and Ubal then transform Sabu into a prince so that he can gain entrance to the palace and protect the Caliph from Muzafar. After Sabu arrives, riding on an elephant, Muzafar assumes that he is the Damascan prince. In a private conversation with the ailing Caliph, Sabu reveals his true identity and tells the Caliph of Muzafar's plot. When Phransigar returns with evidence that he has killed Achmed, Muzafar realizes he has been tricked, but Ubal has already produced a magic elixir to rid the Caliph of the poisons. Once the Caliph recovers, he is kidnapped by Muzafar. After Sabu, Ubal and Sabu's fellow stableboy, Ali, rescue the Caliph, he gives Sabu his eternal thanks. Sabu, in turn, gives the magic ring to Ubal to find a deserving person to become its new owner. Before he leaves, Ubal thanks them with a special blessing, returning them to their original status, poor but happy, surrounded by their friends in the marketplace.