A narrator explains that Crown Prince Wu Luan (based on Shakespeare's Hamlet) was in love with the noblewoman "Little Wan" (based on Shakespeare's Gertrude but changed from being Hamlet's mother to his lover). However, his father, the Emperor, decided to marry "Little Wan" and made her Empress Wan. Wu Luan, deeply hurt by this, fled to the South and retreated into music and dance. The Emperor was then murdered by his brother (Shakespeare's Claudius), who became Emperor Li and upon ascending the throne took Empress Wan, whom he had previously molested, as his wife and had her recrowned as Empress.
The film begins as the usurping Emperor sends riders to assassinate Crown Prince Wu Luan, who would succeed the throne before any of his uncle's progeny. The crown prince, away at a retreat for masked mime actors, survives the massacre at the monastery and is eventually spirited back to the palace.
To keep him alive, Empress Wan has made a compromise with his uncle, which angers Prince Wu Luan. His relationship with his stepmother is unusual because they grew up together in the court, are about the same age and she has romantic feelings for him.
However, the prince is engaged to marry Qing Nu (Shakespeare's Ophelia), the daughter of a palace official, the Grand Marshal (based on Shakespeare's Polonius). A close ally of the former emperor, the Grand Marshall's power is weakened when his son (Shakespeare's Laertes), who is very protective of his sister, Qing Nu, is sent to a distant province to become governor.
Meanwhile, the Empress Wan is to have a new coronation ceremony. As a special treat, Prince Wu Luan, an accomplished singer and dancer, stages a masked mime play that exposes his uncle as his father's murderer.
Rather than kill the prince and risk alienating Empress Wan, the emperor decides the prince would be traded as a hostage for the prince of a neighboring kingdom, the Khitans, although it is known that the neighbor prince is an imposter. An ambush by the emperor's men is set up in a far away, snowy land, but the Grand Marshal's son saves the prince.
Believing that power is firmly in his grip, the emperor calls for a grand banquet. Qing Nu, the Grand Marshal's daughter, has planned another play for the occasion, and in tribute to her fiance, she wears his theater mask. Empress Wan has her own plans – to poison the emperor. However, the scheme to poison the emperor fails as the cup he was to drink out of is instead given to Qing Nu out of respect and partly of pity for her. Upon the young woman's death, the emperor realises in horror that the empress Wan had plotted his death. It is then revealed that Crown Prince Wu Luan was in fact a member of the masked performing troupe. The emperor then commits suicide by drinking the rest of the poisoned wine intended for him. As Empress Wan asks Wu Luan to kill her, the Grand Marshal's son attempts to kill the Empress to avenge his sister, but his poisoned blade is stopped by Prince Wu Luan and Empress Wan stabs the Grand Marshal's son. However, Prince Wu Luan fatally poisons himself in the process of stopping the Grand Marshal's son.
In the end sequence, Empress Wan grasps bright red cloth ands speaks of the "flames of desire" that she has satiated by taking the throne. She is suddenly pierced by a blade from an unknown source. As she is dying, she turns around and looks at her killer with a horrified expression. The blade is then dropped into a mossy koi bed, and the blood soaks the water. The film abruptly finishes, with the audience unsure who was the mysterious assailant. Asian film critic, Bey Logan, makes a claim that the film makers initially planned for the maid, Ling, to be the mysterious assailant, and the current version of the film still shows more shots of Ling than would be normally expected of such a minor non-speaking character.
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