The Caucasian Chalk Circle begins with a Prologue that deals with a dispute over a valley. Two groups of peasants want to claim a valley that was abandoned during WW II when the Germans invaded. One group used to live in the valley and herded goats there. The other group is from a neighboring valley and hopes to plant fruit trees. A Delegate has been sent to arbitrate the dispute. The fruit growers explain that they have elaborate plans to irrigate the valley and produce a tremendous amount of food. The goat-herders claim the land based on the fact that they have always lived there. In the end, the fruit farmers get the valley because they will use the land better. The peasants then hold a small party and a Singer agrees to tell them the story of the Chalk Circle.
The Caucasian Chalk Circle is actually two stories that come together at the end. The first story is that of Grusha and the second story is that of Azdak. Both stories begin in a Caucasian City ruled by a Governor, who serves a Grand Duke. The Governor has just had a child, Michael, and his wife Natella is incredibly jealous of the attention that he gives to his son. The Governor's brother, the Fat Prince, stages an insurrection on Easter Sunday. He kills the Governor and forces the Governor's wife to flee. In her haste, she leaves behind her child. The Grand Duke and many of the soldiers flee as well.
Grusha, a kitchen maid, becomes engaged to a soldier named Simon. Soon thereafter, during the coup, she has Michael handed to her. She hides the child from the Fat Prince and his soldiers, thereby saving the child's life. She then takes Michael with her and flees the city, heading north. After spending most of her money and risking her life for the child, she arrives at her brother's house. He allows her to live there over the winter.
When spring arrives, Grusha's brother forces her to marry a "dying" man from across the mountain. They hold a wedding, but during the reception the guests learn that the war is over and that the Grand Duke has raised an army and returned. The "dying" man, Jussup, realizes that he can no longer be drafted into the war. He miraculously recovers and throws all the guests out of the house. Grusha, now stuck with a husband she did not want, is forced to become a good wife to him.
One day Simon returns and learns that she is married. He is even more upset when he sees Michael, whom he thinks is Grusha's child. Some soldiers soon arrive and take Michael away from her, claiming that Michael belongs to the Governor's wife. Grusha follows them back to the city.
The next story that is told is that of Azdak. The plot returns to the night of the Fat Prince's insurrection. Azdak finds a fugitive and saves the man's life. The man turns out to be the Grand Duke. Realizing that he could be branded a traitor, Azdak walks into town and reveals that he saved the Grand Duke's life. The soldiers refuse to believe him and he is released. The Fat Prince soon shows up with his nephew, whom he wants to make the new judge. However, he agrees to let the soldiers decide who the next judge should be. After staging a mock trial, they choose Azdak.
He then judges four very strange cases, ruling in each case in favor of the poor person. Azdak soon gains a reputation for supporting the poor. However, after two years as a judge, the Grand Duke returns. Azdak is arrested as a "traitor" by the soldiers and is about to be killed by them. However, the Grand Duke, remembering that Azdak saved his life, reappoints Azdak to be the judge, thereby saving his life.
Azdak now takes over the case of Grusha and the child. The Governor's wife wants Michael back because without Michael she cannot take over the former Governor's estates. Grusha wants to keep the child, whom she has raised for the past two years. Even Simon goes to the trial and promises Grusha that he will support her.
After hearing all the arguments and learning about what Grusha has done to take care of the child, Azdak orders a Chalk Circle to be drawn. He places the child in the middle and orders the two women to pull, saying that whichever woman can pull the child out of the circle will get him. The Governor's wife pulls whereas Grusha lets go. Azdak orders them to do it again, and again Grusha lets go. Azdak then gives Michael to Grusha and orders the Governor's wife to leave. He confiscates Michael's estates and makes them into public gardens. His last act is to divorce Grusha, thereby allowing her to marry Simon. During the dancing that follows, Azdak disappears forever.
