The Tobacconist is set in the Salzkammergut region of the Austrian Alps. It follows a young man named Franz, who lives with his mother (Frau Huchel). One day, Franz's mother sends her son to Vienna to learn from a man named Otoo Trsnyek. While learning the tricks of the trade in Vienna, Franz meets a psychologist named Dr. Sigmund Freud. Although vastly different in terms of their age, their status, and where they are in their life, they become fast friends. For his part, Freud advises his younger friend to explore the more tender side of life. Franz, for his part, agrees with the good doctor and decides to spend the night with an enchanting night with Bohemian girl whose name remains a mystery to him.
After their rendezvous, Franz loses sight of the Bohemian girl as the political landscape of Vienna begins to tremble because of Adolf Hitler and the evils of his Nazi party--particularly his antisemitism. That antisemitism begins to affect Franz and his tobacconist shop, which racist people around town deface. This antisemitism, coupled with his losing the Bohemian girl, frazzles Franz, who goes to Freud for advice. Freud's advice is simple: either forget the girl or muster the courage to find her again.
Freud's advice motivates Franz, who retraces his steps to find the girl and her address. Franz goes to the girl's address and finds himself in a run-down part of town. There, he meets the woman again; he discovers her name is Anezka. The two are intimate once again, but Anezka disappears the following morning.
As a result of her dissidence, Franz decides to stake out at her home and follows her around the city until he discovers her performing in a risqué stage show. After the show, Franz confronts Anezka, who tells him she is a sex worker. Meanwhile, Freud, whose patients are draining him, enjoys his discussion with Franz about Anezka. He enjoys it personally and enjoys it from the perspective of his work. Simultaneously, the Austrian chancellor succumbs to Adolf Hitler and his Reich.
As Otto painstakingly repairs his shop after another act of vandalism, the Gestapo (Nazi secret police) intervenes. They accuse him of distributing explicit material to a Jewish clientele. Franz identifies Rosshuber, the town's deli owner, as the snitch who ratted out he and Otto. Otto, who took the blame for distributing the materials and was sent to jail for it, is nowhere to be seen, which worries Franz.
Franz begins frequenting the Gestapo headquarters demanding Otto's whereabouts, earning threats from the guard. A package arrives later at the shop, which announces Otto's death. In the package is also Otto's belongings, including an odd pair of one-legged trousers. Enraged, Franz confronts Rosshuber about Otto's demise, leaving the butcher dumbfounded with shame.
Given Vienna's volatile political environment because of Hitler and his Nazi party, Franz worries about Anezka. Upon returning to the ghetto, he learns of Anezka's new Nazi officer boyfriend. Dejected, Franz, at the same time, discovers Freud's plot (along with his daughter) to escape Vienna. He says goodbye to Freud and his daughter at the train station. Later that night, Franz replaces the Nazi flag atop the Gestapo headquarters with the flag of Jerusalem and Otto's one-legged trousers, resulting in his arrest and the shop's closure.
