Then on the banks of the Seine River at night, a white-skirted Lise and Jerry walk and talk together. He encourages her to "live dangerously. The night is young." He wishes she would share more about herself, in their slightly embarrassed conversation:

Jerry: What about you? Aren't you sick of The Life and Times of Mulligan?
Lise: I'd rather listen to you. I don't like to talk about myself.
Jerry: Oh, you're going to have to get over that.
Lise: Why?
Jerry: Well, uh, with a binding like you've got, people are going to want to know what's in the book.
Lise: What does that mean?
Jerry: Well, uh, primarily it means you're a very pretty girl.
Lise: I am?
Jerry: Yes, you are.
Lise: How do you know?
Jerry: I, uh, heard it on the radio.
Lise: Making fun of me.
Jerry: Doesn't everybody tell you that?
Lise: I haven't been out with many people. And always friends.
Jerry: Honey, believe me. I'm no enemy...Lise, I don't know whether you're a girl of mystery or just a still water that doesn't run deep, but there's one thing I can tell you. I'd been around sooner, you'd know by now that you're very pretty and I'm not making fun with you.

In one of the loveliest, most romantic of the film's song and dance numbers, they elegantly dance and sing "Our Love Is Here To Stay" in a blue hazy mist with yellow fog lights. At first, she is tentative and must be persuaded to dance, and then they share their love more openly. Tenderly and lyrically, they both express their repressed romantic emotions for each other, building to the dramatic, swirling climax of their dance. The two circle each other in a crescendo of movement and music, leading to the longed-for embrace. After their number, the loving couple walk into the blue smoky mist, strolling hand-in-hand away from the camera as the music drops to silence. When the music stops, Lise suddenly runs away to see Henri perform a new musical number in the theater, without explaining why to Jerry. But she does agree that they have to see each other again - that Saturday.

At the same time, revue singer Henri delivers an entertaining stage show, "I'll Build a Stairway to Paradise," a Folies Bergere or Ziegfeld Follies type musical number featuring his lovely tenor voice. In a tux with tails, top hat and cane, he performs solo on a vast, lighted staircase reaching skyward. As he descends, the steps light up as his feet touch them. The stairway is lined with beautifully plumed, statuesque showgirls, and surrounded by others holding elaborate candelabra aloft. Lise arrives at his theater just as the show has ended. He is ecstatic about plans to tour in America with her after they are married.

Adam teases Jerry about having a rich sponsor and patroness. He asks what she wants in return and speculates about their marriage: "Tell me, when you get married, will you keep your maiden name?" Lying on his bed after Jerry leaves with Milo, Adam experiences a dream sequence in which he self-indulgently imagines himself at a concert triumphantly playing Gershwin's "Piano Concerto in F." He is the solo concert pianist and conductor of the orchestra, as well as a few of the other members of the orchestra playing violin, xylophone, tympany and gong. He even applauds himself as a member of the audience. [The comedy bit was adapted from Buster Keaton's own short silent film The Playhouse (1921) in which the comedian played every acting role - and even the audience.]

Milo shows Jerry a studio which she has arranged and equipped for him. Embarrassed by his own lack of money and to avoid feeling obligated to her, he declines: "I can't afford a joint like this." She excitedly tells him he could pay her back in three months. She has an art exhibition planned for him by then. Not wanting to be rushed into such an agreement, Jerry explains: "It's got to be when I'm ready, when my stuff is good enough to show to the public and the critics...I'm not manufacturing paper cups." Milo feels their talents fit together perfectly: "Look, you're a painter and a good one. I happen to have a little drive. That's a good combination. Besides, you have to face the critics sometime." He agrees on the condition that she is paid back.

In a lively montage, he abandons himself to his work, prolifically painting many canvasses of scenes around Paris, including the cityscape of the Place de l'Opera, a little girl with a toy, and a portrait of Lise coquettishly holding a red flower (foreshadowing the spark that begins the balletic finale). The montage ends with an overhead shot of Jerry, standing in the middle of a circle of his finished paintings.

Although they are both in love, Jerry and Lise realize that they are keeping their other relationships a secret from each other - Jerry's association with his patroness Milo, and Lise's engagement to Henri. Adam gives Jerry further counseling about his relationships: "I told you this sponsoring business was complicated. You see what happens today? Women act like men and want to be treated like women." Jerry is frustrated by his on-again, off-again relationship with Lise:

What gets me is, I don't know anything about her. We manage to be together for a few moments and then off she goes. Sometimes we have a wonderful time together and other times it's no fun at all. But I got to be with her.

Adam spills his coffee down his front when Jerry tells him his girlfriend is Lise Bouvier. Henri arrives to announce his forthcoming marriage and honeymoon plans to the same woman. Jerry describes his feelings about the girl he is "stuck on." Unaware of the identity of Jerry's girl, Henri encourages him to tell her of his love and propose marriage. Henri advises: "So be happy! You only find the right woman once." Adam isn't so sure and jests: "That many times?" In another song and dance number, "'S Wonderful," Henri and Jerry harmonize together about the joys of being in love. Ironically, neither realize that they are singing about the same girl that they both love.

Jerry and Lise share confidences in another scene by the banks of the Seine. Lise realizes that she must tell Jerry the truth - she is engaged and feels obligated to marry Henri Baurel, because of the protection he offered her for five years during the Resistance, and the subsequent growth of their love. Although Jerry and Lise are in love, they nobly decide not to see each other again. As Jerry departs up the stairs, she sentimentally calls out: "If it means anything to you, I love you."

Depressed by the news, thinking that Lise has left his life for good, Jerry proposes to take Milo to a gala Beaux Arts Ball sponsored by the art students. For once, Jerry flatters Milo with attention and kisses, and she responds warmly: "I feel like a woman for a change." The costumes and set for the ball are in a basic black and white color scheme or motif [a stark contrast to the richly colored finale], and the revelers are festive. Lise, Adam and Henri are also at the lavish masked ball. Obviously, the four disillusioned romantics at the ball each contemplate their fates - Jerry, Henri, Lise, and Milo. Ultimately, Jerry cannot forget Lise and the atmosphere of the ball doesn't lift his spirits - he tells Milo of his real love for Lise. He turns away from her support and rejects being one of her supported artists.

During the evening, broken-hearted Jerry retreats to the balcony at the Beaux Arts Ball, overlooking the vast scene of Paris at night where he manages to see Lise alone for a final goodbye before she departs. In the bittersweet, romantic setting, Lise confesses she feels love for him too:

Lise: Oh Jerry. It's so dreadful standing next to you like this, and not having your arms around me.
Jerry: You'll always be standing next to me Lise.
Lise: Maybe not always. Paris has ways of making people forget.
Jerry: Paris? No, not this city. It's too real and too beautiful. It never lets you forget anything. It reaches in and opens you wide, and you stay that way. I know. I came to Paris to study and to paint it because Utrillo did, and Lautrec did, and Rouault did. I loved what they created, and I thought something would happen to me, too. Well, it happened all right. Now what have I got left? Paris. Maybe that's enough for some, but it isn't for me anymore. Because the more beautiful everything is, the more it'll hurt without you.
Lise: Jerry. Don't let me leave you this way.

This dialogue comprises the final spoken words of the film, with nearly twenty minutes remaining. Lise and Jerry embrace before she leaves him, possibly forever. Jerry is emotionally heartsick, left alone and ignoring the party inside. He has torn in half a black and white charcoal sketch of the Place de l'Etoile that he has drawn. The two pieces have drifted to the floor where they mingle with confetti.

The film makes a transition from the real world into an elaborate fantasy to tell the story of his predicament and the ups and downs of their romance. Through free association in his mind, he brings together the city of Paris and its influential painters. The story of the over 13 minute extravagant and imaginative dream ballet finale, "An American in Paris," also recapitulates Mulligan's plight in losing the girl he now loves. It is a parallel tale of an ex-GI who remains in Paris following the war and falls in love with a French girl - and loses her. Simultaneously, he views Paris through the colors and designs of some of its most famous painters.

The varied artistic styles of the scenery, decor, and costumes for each of the six sequences are done in the styles of famous French painters - Manet, Renoir, Utrillo, Van Gogh (Dutch, actually), Rousseau, Dufy, and Toulouse-Lautrec. The dance and choreographic styles also range from modern dance and tap dance to jazz, classical, and ballet. Dazzling colors, music, rich backgrounds, camera movements, lightings, dance movements, costumes, decorations, sets, long takes, and special effects (colored steam, for example) provide an overwhelming impression, surreal at times.

Throughout the ballet, Jerry the painter continually sees, pursues, courts, and then loses Lise, moving through familiar Parisian locations, all in the style of the painters. The single connecting symbol that provides a transition between the six sequences is a red rose (representing the girl). Here is an "American in Paris" chasing after his French dream girl through the Paris of his favorite artists - their famous painting styles come to life. Her identity constantly shifts and changes as the mood, music and settings also vary in the Gershwin suite.

Sequence One: In a tracking shot, the two pieces of the torn charcoal sketch are swept along the gutter in a whirlwind of confetti until they suddenly unite and become the full-size Place de l'Etoile background of the same design for the opening sequence. In front of the black and white backdrop is a dramatic accent of color from a red rose dropped by Lise. A black-garbed Jerry materializes in the foreground, picks up the rose, and the backdrop suddenly explodes in color. The Place de la Concorde fountain (in Dufy style) swirls around as he dances through the sequence.

Sequence Two - a Madeleine flower market with a quiet lyrical mood (Manet or Renoir style); Jerry is joined in a street scene (inspired by Utrillo) by four GIs on French leave (the only part of the sequence in which Lise doesn't appear). This is followed by a march of spirited, strutting gendarmes set in a gaudy fairground. There are holiday throngs at the Jardins des Plantes, with Punch and Judy show, menagerie animals, blue-tighted acrobats, and schoolgirls (in a Rousseau setting).

Sequence Three - a continuation of the previous sequence, with the GIs (accompanying Jerry) as straw-hatted hoofers pursuing the dancing schoolgirls.

Sequence Four - a passionate emotional, mating dance (during a smoky night) between Jerry and Lise around a fountain in the Place de la Concorde (Dufy style). Then, the Place de l'Opera is seen in autumnal shades of color (Van Gogh style).

Sequence Five - a jazz-inspired sequence with Jerry as a muscular, white-tighted "Chocolat" (a famous Toulouse-Lautrec character) in a Montmartre cafe setting, with blonde cancan girls a la Moulin Rouge led by Lise.

Sequence Six (Finale) - a return to the Place de la Concorde fountain. In the final sequence at the Dufyesque Place de la Concorde fountain, after a final burst of color and movement, everything suddenly vanishes - the crowd disappears.

Jerry comes back to reality from his long dream/fantasy and finds himself alone with his red rose in front of the black and white sketch backdrop in a deserted Paris. The music builds to a crescendo with a zoom closeup of the red rose in his hand. The rose dissolves into his lovelorn, romantically desolate face.

But there must be an inevitable, happy reconciliation - Jerry looks down to the street from a balcony where he sees Lise giving Henri a short, grateful farewell kiss. Henri, who has sensed and discovered that Lise loves Jerry, releases Lise from her engagement and steps aside. Lise returns to Jerry, running up a long flight of stairs into his arms, ecstatically reunited in a loving embrace in the happy ending. The camera pans upwards to a twinkling Paris skyline.