With William Shakespeare's play Hamlet as the backdrop, Rosencrantz and Guildenstern Are Dead concerns the musings and mishaps of the titular characters. The play is structured as the inverse of Hamlet, in which Rosencrantz and Guildenstern are two minor characters who were childhood friends of the Prince; instead, the duo remains the focus and Hamlet himself is a minor role whose actions occur largely offstage, with the exception of a few short scenes in which the dramatic plays converge.

In Hamlet, Rosencrantz and Guildenstern operate under the King's command in an attempt to discover Hamlet's motives and plot against him. Hamlet, however, derisively mocks and outwits them, so that they, rather than he, are sentenced to death in the end. Rosencrantz and Guildenstern Are Dead explores these events from the perspective of the duo; their actions seem largely nonsensical because they are superseded and, therefore, determined by Hamlet's plot.

Rosencrantz and Guildenstern find themselves on a ship that has already set sail. The pair seem to have no knowledge of how they got there. At first, they try to determine whether they are still alive, before they recognize that they are not dead and are on board a boat. They remember that Claudius has given them a letter to deliver to England. After some brief confusion over who actually has the letter, they find it and eventually open it. They realize that Claudius has asked for Hamlet to be killed. While Rosencrantz seems hesitant to follow their orders now, Guildenstern convinces him that they are not worthy of interfering with fate and the plans of kings. The stage darkens and, presumably, the characters go to sleep. Hamlet switches the letter with one he has written himself, an act which takes place offstage in Hamlet.

The pair discovers that the Tragedians are hidden ("impossibly", according to the stage directions) in several barrels on deck. They are fleeing Denmark because their play offended Claudius. When Rosencrantz complains that there is not enough action, pirates attack. Hamlet, Rosencrantz, Guildenstern, and the Player all hide in separate barrels. The lights dim.