The composer supplied his own libretto for this romantic opera in four acts, basing it on and quoting from an unfinished "dramatic romance," "verse play," or "Singspiel libretto" (1832) by Alexander Sergeyevich Pushkin, which in turn was inspired by Ferdinand Kauer's Das Donauweibchen (The Little Wife of the Danube, aka "Die Saalnixe" [The Water-Sprite in the Hall], 1798, mentioned in Goethe's novel Die Wahlverwandtschaften [The Affinities]). It was premiered at the Circus Theatre on May 16, 1856, to general audience indifference. But only a few years later it would become one of Russia's favorite operas and part of the national repertoire.

The Rusalka story is another take on the archetypical transformation myth concerning a girl or a young woman, like Undine (the sylph immortalized as heroine of the Fouque story), Wilis, or Lorelei (siren of the Rhine), who is sexually violated or otherwise disrespected and, despairing, drowns herself, only to become a water nymph who is then able to exact revenge on the one who ruined her life.

In Dargomizhsky's version of the tale, a Prince in disguise has been romancing a miller's daughter, Natasha, and then jilts her to marry another, not knowing that she has become pregnant. Given the mores of the time and culture, she becomes desperate and commits suicide by jumping into the great river of the Ukraine called the Dnepr (or Dnieper). During the wedding ceremony, Natasha's voice is mysteriously heard, disrupting the proceedings. Afterward, the Prince is obsessively drawn to the riverbank, and the foreign princess expresses her misgivings about her new husband's condition to her orphaned ward Ol'ga. The Prince runs into Natasha's father, the miller, who has become insane with loss and talks about himself as "the local raven" in a brilliant Act III recitative shared with the Prince. The Prince finally learns of Natasha's fate. Natasha has become the Queen of the water nymphs, the Rusalki, and plans her revenge together with her child, the water baby, who meets the Prince. When Natasha appears to him, he hurls himself into the river.

Other characters and choristers include a water gnome, Vodnik, a witch, Jezibaba, a hunter, a gamekeeper, Turnspit, various wood nymphs, guests at the wedding, and the Prince's entourage.

Igor Stravinsky once praised the opera for "mixing the Russian popular melos and the prevailing Italianism with the most carefree and charming ease," but it has been pointed out that the Russian elements in the opera are all given to those characters of lower social caste whereas all the upper-class music is modeled after Italian styles and forms.

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