In the desert, a battle rages between the cities of Basra and Bagdad, during which Basranian Harun's father is wounded. Before he dies, Harun's father gives him a medallion he has pulled from his killer's neck, and urges him to put an end to the fighting. Harun travels to Bagdad, where he spies beautiful Khairuzan trying to sell clothes to flinty shopkeeper Barcus. To help her, Harun buys the clothes, and also finds a gold sword in the back of the shop. Soon after, a rabble-rouser accuses Basra's citizens of starting the fighting, and when Khairuzan defends Basra, a riot breaks out. Barcus watches in awe as Harun cuts the other men's swords in half with his. As soon as soldiers appear and spirit Khairuzan away, the fight stops, and Harun finds a medallion identical to his own on the ground. In the shop, Barcus tries to demonstrate the sword's power, but it will cut through iron only when Harun wields it. Barcus, sure that the sword correlates to a legend, attempts to read its two inscriptions. Unable to do so, he warns Harun that all swords have two sides, and until they can discover all its powers he must be very careful. Meanwhile, cunning vizier Jafar advises Badgad's Caliph to fight Basra, but the Caliph refuses. Khairuzan, who is his daughter, is soon brought in by her guard, Jafar's brawny 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 her marital fate, she escapes the palace disguised 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 when the magic sword protects him from Hadi's cuts. 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 jailed. In the prison, they kiss, but then quickly begin to quarrel. After being released to her father, she declares that only the winner of a joust will 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 provides alms 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 signed up for the joust. 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 joust, Hadi, who cannot cut metal with the sword, 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 swords were 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 brought before Jafar, where 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, then Harun and Khairuzan escape by fooling the guards into believing they have died. Back at the palace, Jafar and Hadi soon discover that they cannot pull the sword from 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 arrives with her army. He grabs the sword from the pillar, causing it to collapse on top of Jafar and Hadi. With Bagdad's true enemies killed, Khairuzan pronounces Harun a hero, and they kiss as the townspeople cheer.