In the story, Ali Baba is a poor woodcutter who discovers the secret of a thieves' den, entered with the phrase "Open Sesame". The thieves learn this and try to kill Ali Baba, but Ali Baba's faithful slave-girl foils their plots. Ali Baba gives his son to her in marriage and keeps the secret of the treasure.
The story has been classified in the Aarne–Thompson classification system as number 676: Supernatural Power or Knowledge.
The tale was added to the story collection One Thousand and One Nights by one of its European translators, Antoine Galland, who called his volumes Les Mille et Une Nuits (1704–1717). Galland was an 18th-century French Orientalist who may have heard it in oral form from a Middle Eastern story-teller from Aleppo, in modern-day Syria. In any case, the first known text of the story is Galland's French version. Richard F. Burton included it in the supplemental volumes (rather than the main collection of stories) of his translation (published as The Book of the Thousand Nights and a Night) and thought its origins were Greek Cypriot.
The American Orientalist Duncan Black MacDonald discovered an Arabic-language manuscript of the legend at the Bodleian Library; however, this was later found to be a counterfeit.
Ali Baba and his elder brother Cassim are the sons of a merchant. After their father's death, the greedy Cassim marries a wealthy woman and becomes well-to-do, building on their father's business. Ali Baba marries a poor woman and settles into the trade of a woodcutter.
One day, Ali Baba is at work collecting and cutting firewood in the forest, and he happens to overhear a group of 40 thieves visiting their treasure store. The treasure is in a cave, the mouth of which is sealed by magic. It opens on the words "open sesame" and seals itself on the words "close sesame". When the thieves are gone, Ali Baba enters the cave himself and discreetly takes a single bag of gold coins home.
Ali Baba and his wife borrow his sister-in-law's scales to weigh their new wealth. Unbeknownst to them, Cassim's wife puts a blob of wax in the scales to find out what Ali Baba is using them for, as she is curious to know what kind of grain her impoverished brother-in-law needs to measure. To her shock, she finds a gold coin sticking to the scales and tells her husband. Under pressure from his brother, Ali Baba is forced to reveal the secret of the cave. Cassim goes to the cave, taking a donkey with him to take as much treasure as possible. He enters the cave with the magic words. But in his greed and excitement over the treasure, he forgets the words to get out again. The thieves find him there and kill him. When his brother does not come back, Ali Baba goes to the cave to look for him, and finds the body quartered and with each piece displayed just inside the cave's entrance, as a warning to anyone else who might try to enter.
Ali Baba brings the body home where he entrusts Morgiana, a clever slave-girl from Cassim's household, with the task of making others believe that Cassim has died a natural death. First, Morgiana purchases medicines from an apothecary, telling him that Cassim is gravely ill. Then, she finds an old tailor known as Baba Mustafa whom she pays, blindfolds, and leads to Cassim's house. There, overnight, the tailor stitches the pieces of Cassim's body back together so that no one will be suspicious. Ali Baba and his family are able to give Cassim a proper burial without anyone's asking awkward questions.
The thieves, finding the body gone, realize that yet another person must know their secret, and they set out to track him down. One of the thieves goes down to the town and comes across Baba Mustafa, who mentions that he has just sewn a dead man's body back together. Realizing the dead man must have been the thieves' victim, the thief asks Baba Mustafa to lead the way to the house where the deed was performed. The tailor is blindfolded again, and in this state he is able to retrace his steps and find the house. The thief marks the door with a symbol so the other thieves can come back that night and kill everyone in the house. However, the thief has been seen by Morgiana who, loyal to her master, foils the thief's plan by marking all the houses in the neighborhood similarly. When the 40 thieves return that night, they cannot identify the correct house, and their leader kills the unsuccessful thief in a furious rage. The next day, another thief revisits Baba Mustafa and tries again. Only this time, a chunk is chipped out of the stone step at Ali Baba's front door. Again, Morgiana foils the plan by making similar chips in all the other doorsteps, and the second thief is killed for his failure as well. At last, the leader of the thieves goes and looks himself. This time, he memorizes every detail he can of the exterior of Ali Baba's house.
The leader of the thieves pretends to be an oil merchant in need of Ali Baba's hospitality, bringing with him mules loaded with 38 oil jars, one filled with oil, the other 37 hiding the other remaining thieves. Once Ali Baba is asleep, the thieves plan to kill him. Again, Morgiana discovers and foils the plan, killing the 37 thieves in their oil jars by pouring boiling oil on them. When their leader comes to rouse his men, he discovers they are all dead and escapes. The next morning, Morgiana tells Ali Baba about the thieves in the jars. They bury them, and Ali Baba shows his gratitude by giving Morgiana her freedom.
To exact revenge after some time, the leader of the thieves establishes himself as a merchant, befriends Ali Baba's son (who is now in charge of the late Cassim's business), and is invited to dinner at Ali Baba's house. However, the thief is recognized by Morgiana, who performs a sword dance with a dagger for the diners and plunges it into the thief's heart, when he is off his guard. Ali Baba is at first angry with Morgiana, but when he finds out the thief wanted to kill him, he is extremely grateful and rewards Morgiana by marrying her to his son. Ali Baba is then left as the only one knowing the secret of the treasure in the cave and how to access it.