The steamer Tabo, described as heavily built, almost round, and dirty, laboriously navigates the Pasig River with a large crowd. It is affectionately regarded despite its imperfections, symbolizing a triumph over progress. The narrator compares it to the 'Ship of State,' highlighting its slow, cumbersome movement and its impact on the river and its inhabitants.

The arrangement of passengers on the Tabo reveals social stratification: brown faces and black heads are wedged between merchandise on the lower deck, while European-dressed passengers, friars, and clerks occupy comfortable chairs on the upper deck. They observe the landscape, seemingly oblivious to the captain's and sailors' efforts to navigate the river's dangers.

Doña Victorina, a Europeanized Filipina, expresses her irritation with the Tabo's slow pace and the presence of 'Indians' (locals) in the river. She questions the captain's navigation choices, to which he calmly responds, attributing the slow speed to the shallow river and the risk of traveling over rice fields.

Doña Victorina's entourage is introduced, including three friars, the sleeping Don Custodio, the writer Ben-Zayb, Canon Padre Irene, and the wealthy jeweler Simoun, who is rumored to advise the Captain-General. Their presence and lack of attention to Doña Victorina further fuel her ill-humor.

A lively conversation among the European group turns to proposals for straightening the river channel and port works. Ben-Zayb and a young friar argue, with an elderly Franciscan (Padre Salvi) intervening to highlight the perceived failures of scientists compared to the practical wisdom of the friars, citing a bridge that defied scientific predictions.

Simoun, a mysterious jeweler with a mixed accent and appearance, silences Doña Victorina's complaints with a radical, simple, and 'free' solution to the river's problems: dig a new canal from the source to the mouth, passing through Manila, and fill up the old Pasig. This would save land, shorten communication, and prevent sandbar formation, astounding the other passengers.

Don Custodio, initially against Simoun's 'Yankee plan' due to the cost and potential destruction of towns, is shocked when Simoun suggests using prisoners and convicts, or even forcing common villagers, old men, youths, and boys, to work for months without pay, providing their own food and tools. Simoun dismisses concerns about uprisings by citing historical examples of forced labor in ancient civilizations.

Simoun boldly challenges Don Custodio's historical knowledge and dismisses the Dominican's concerns about potential rebellions, asserting that the islands will never rebel again. He uses Padre Salvi's own examples of buildings constructed through forced labor to support his point, before disdainfully dismissing the friars' protests as 'nonsense'.

Simoun's abrupt departure leaves Padre Sibyla and Don Custodio stunned and offended. Don Custodio angrily speculates about Simoun's identity and motives, calling him an 'American mulatto' and accusing him of manipulating the Captain-General. The others, though disagreeing on Simoun's origins, remain cautious, fearing repercussions.

Returning to his own past projects, Don Custodio reveals his 'original, simple, useful, economical, and practicable' plan for clearing the lake bar: compel nearby towns to raise ducks, which would then deepen the channel by fishing for snails in the sand. His audience is initially stupefied by the eccentricity of the idea, though Ben-Zayb sees an article in it. Doña Victorina, however, is disgusted by the thought of abundant balot eggs.