Having read some tales of chivalry, Don Quixote decides to set out in search of adventures. It occurs to him to make his servant Sancho Panza his armour-bearer.
In front of Lorenzo’s inn in Barcelona, a holiday crowd has gathered. Also there are Kitri, the flirtatious daughter of the innkeeper, and her lover Basilio, the barber. Lorenzo does not like the poor barber. The rich nobleman Gamache, who wants to marry Kitri, is more fit for his daughter.
The crowd welcomes a street dancer and the famous toreador Espada. At the appearance of an extraordinary-looking horseman, the people are struck with astonishment. Lorenzo welcomes Don Quixote courteously and invites him to partake of some refreshment. The girls seize the opportunity to have a bit of fun by playing tricks on fat Sancho Panza.
The knight sees Kitri and is struck by her beauty. Is it not she who has haunted his dreams as the beautiful Dulcinea?
Fleeing from Lorenzo and Gamache, the two lovers, Kitri and Basilio, wander into a gypsy camp. Soon Don Quixote appears in the camp. The gypsies invite Don Quixote to attend a play they are about to perform. Don Quixote follows the performance with rapt attention and, forgetting it is theatre, defend those who need his protection. Catching sight of the windmills, he mistakes them for evil magicians whom he has to hit. Don Quixote attacks the windmill.
Don Quixote, who has fallen asleep, is haunted by visions: he is in the beautiful Kingdom of the Dryads. Among them is Kitri, who has assumed the form of Dulcinea.
Morning breaks and Kitri and Basilio wake up only just in time, for Lorenzo and Gamache are close upon them. The lovers flee. Don Quixote, their protector, sends Lorenzo and Gamache on a false trail, but Sancho Panza corrects his master’s “mistake”. The chase goes on.
People are gathering for a fiesta at an inn. Among them Kitri and Basil. Lorenzo overtakes the lovers. Kitri's husband must become Gamache. Basil plays the suicide scene. Kitri begs Don Quixote to persuade his father to fulfill Basil's death request – to give their love his blessing. Lorenzo blesses the lovers. The very next instant, Basilio jumps to his feet.
The wedding of Kitri and Basil. Don Quixote is the guest of honour. Wishing the newly-weds every happiness, the knight-errant departs in search of new adventures.