Ricardo leaves town but causes another problem for Diego before he goes. Still infatuated with Anna Maria, Ricardo tells her that Zorro would unmask himself if he really loved her. The problem is, Diego does love her, and thus begins to consider turning himself in. The governor offers the outlaw amnesty if he will surrender himself at a public ceremony.

The plans of the fake commandante and the magistrado go awry when Ortega spots Diego talking to Rosarita Cortez, a childhood friend who has recently returned from the capital. Ortega fears she will recognize him from her journey, for it was during that trip that he murdered the real Ortega and assumed his identity. Bernardo overhears the two villains planning her death, and notifies Diego.

Faking Martinez's death, Captain Monastario again tries to use him to impersonate and disgrace Zorro by robbing a church, leaving Zorro confused as to who could be the impostor this time.

Captain Monastario finally realizes that Don Diego must be Zorro, and arrests him, but a Viceroy from the King of Spain who is visiting the pueblo turns out to be an old friend of Diego's, and this is just enough to allow Zorro to turn the tables and have Monastario discredited.

Bernardo, who is keeping watch over Varga, is disturbed to see Garcia leading a patrol of lancers out of the cuartel. Even more disturbing is the sight of several strangers who drift into the Eagle's headquarters. When he tries to look inside, the gates are locked, so he rushes to warn Diego of the threat.

The story of the masked rider in Old California opens as Don Diego de la Vega is returning to California from Spain, where he has been studying for several years.

The fake Ortega and the magistrado announce they have captured Zorro, and a cart holding a masked man is dragged into the town square. A public unmasking will be held at noon, and Diego fears that an innocent man will be charged with Zorro's "crimes". He also realizes it may all be a trap, so when he dons his costume and rides into the square to free the prisoner, he watches carefully for soldiers.

Capitan Toledano plans to interrogate two prisoners who were seized when the gunpowder was recovered. The prisoners warn Figueroa, one of the magistrado's men, that they will talk unless someone helps them escape. Instead, they are found dead in their cell the next morning. A doctor examines the bodies and suspects murder, but the magistrado announces that it was suicide.

An emissary from a foreign power has arrived in the pueblo to discuss plans to help the Eagle in his rebellion. George Brighton, the agent, warns Varga that there must not be any open resistance. His government wants an obedient colony, not one torn apart by internal battles. Varga promises to deliver control as planned, but he continues to worry about Don Alejandro and the other landowners who have pledged their allegiance to the King.

Diego overhears Varga telling his aide that the de la Vega hacienda is so comfortable he intends to make it his permanent headquarters. Knowing his father will soon return and would fight to the death to protect his home, Diego decides to try a risky plan to drive the Eagle out.

Pedro Avila, recently arrived in the pueblo, earns a meager living by betting other men that he can beat them in a sword fight. He tries to talk Diego into betting, but Diego refuse, as Diego knows he must keep his skill a secret. This gives Avila and his friend Tony Pineda an idea about how to get rich. They plan to force Diego into a duel, then allow the frightened man to buy his way out of the situation.

Captain Monastario's latest plan is to discredit Zorro by having a prisoner who killed a man in a sword fight pose as the masked avenger and rob the local landowners at a dinner party.

Don Alejandro tells Diego he's received a letter from a friend in the capital telling him that the new commandante, Capitan Juan Ortega, has the reputation of being an honest and fair man. When Ortega arrives, he doesn't act that way. He treats Sergeant Garcia with contempt and is openly arrogant toward the civilians. The reason for this is revealed when Ortega meets the magistrado and informs him that the real commandante has been ambushed and murdered, on orders of the Eagle.

Magistrado Galindo has smuggled a supply of weapons into the pueblo, intending to use them when the Eagle orders the overthrow of the government, but he has been unable to get a supply of gunpowder. The army has a large stockpile at the cuartel, and the magistrado decides to steal it for his use

Another stranger arrives in the pueblo and travels to the de la Vega hacienda, intending to meet with the Eagle. Diego recognizes the visitor as Count Kolinko, an ambassador from an Eastern European country that has long been interested in controlling California. Since the Eagle has left for the pueblo, Diego manages to convince Kolinko that he is also part of the conspiracy. He almost succeeds in gaining necessary details of the plot.

Humiliated by Zorro, Basilio gets his revenge by arresting Sergeant Garcia and hoisting him in the air in the public square outside the cuartel. A large sign dares Zorro to rescue Garcia, but Diego knows Basilio will have hidden lancers throughout the area. When night arrives, so does Zorro, using Bernardo to help create a diversion that draws the soldiers out of town.

No sooner does the honest new commandante arrive than he is assassinated by a mysterious stranger who frames an elderly beggar for the crime and appears to be part of a larger conspiracy.

Sergeant Garcia receives a mysterious note from Zorro. The happy soldier reads that Zorro will give himself up. When he returns for his sword, it is gone, so he sadly returns to the cuartel without having captured his foe.

Ramon Santil has just inherited his father's ranch and holdings, and some bad news. The magistrado tells him there's a high tax that must be paid at once or he will lose the land, and Ramon doesn't have the money to pay it. In desperation, he sells all of his cattle to Carlos Urista, a recent arrival in town whom Diego suspects as another of the Eagle's men.

With the death of the magistrado, the Eagle takes a more active role in his conspiracy to rule southern California. He sends two of his men, Quintana and Fuentes, to Los Angeles with a load of gunpowder for the weapons previously smuggled into the pueblo. The two men earn the wrath of the Eagle for suggesting that Zorro may upset the plan, and they fearfully head off on their mission.

Don Alejandro convinces all of the landowners to sign a document pledging their loyalty to the government, for he has become worried by the growing signs of possible civil unrest. He leaves a copy in the hacienda and takes the original to the capitol, intending to present it to the governor. Alejandro has barely left when Diego receives some unwelcome news. A new administrator has arrived in the pueblo and announced his decision to use the de la Vega hacienda as his headquarters.

Ricardo asks for Diego's help in winning Anna Maria's heart, for he feels Zorro is too much competition for the two men to overcome. If they can make it seem that Zorro is seeing another woman, Anna Maria will scorn him, thus dropping the field of suitors to a more manageable size. Ricardo plans to accomplish this by dressing as Zorro and serenading Anna Maria's cousin, Milana del Carmen.

Basilio has begun to enjoy his stay in Los Angeles despite Zorro's interference. He is surprised at how well his war bonds are selling, for the landowners have decided to help support the Spanish government as much as possible.

The recovering governor is beginning to become irritated by his confinement to the de la Vega home. At times it seems as if the only thing that can pacify him is a music box. Almost as soon as it begins to play, the governor falls asleep. Knowing that the Rebatos are still trying to kill the governor, Diego uses the box to lull him to sleep then Bernardo moves him to safety.

After failing in his attempt to sneak food to the fugitive in the Mission where Captain Monastario has laid siege, Zorro tries to scare the soldiers away by spreading a rumor about the mad monk who supposedly haunts the place.