Spots 
Pero Pérez and Master Nicholas visit Don Quixote during his recovery to evaluate his mental state. Their conversation begins calmly about governance, but as soon as military affairs arise, the old delusions of knight-errantry return fully intact. Quixote insists that knights-errant remain essential to defend the realm against foreign threats.
Housekeeper and niece attempt to bar Sancho Panza at the door, blaming him for luring their master away. Sancho pushes past them, insisting Quixote lured him with promises of an island to govern. Once inside, Sancho reveals that a published history of their previous exploits is already circulating across Spain.
The young bachelor Sansón Carrasco arrives to confirm that thousands of copies of Quixote's adventures have been printed. He recounts how readers praise Sancho's humor and debate Quixote's madness. This literary reality validates Quixote's belief that his deeds belong to history, inspiring plans for a new sally.
Sancho addresses errors in the chronicler's book, including the mystery of how his donkey vanished and reappeared. He defends his honesty while expressing satisfaction with his depicted character. Don Quixote resolves to set out again within days, selecting El Toboso as their first destination.
Teresa Panza scolds Sancho for dreaming above his station, warning that elevating their daughter Sanchica to courtly nobility will bring misery. Sancho maintains that a governor's wealth changes everything, insisting class boundaries yield to money and power. Teresa demands he remember his humble roots, highlighting the rift between ambition and peasant realism.
Don Quixote's niece argues that true virtue lies in staying home and caring for one's estate rather than wandering the countryside. Quixote responds that noble lineage means nothing without virtuous action, placing chivalry above inherited titles. He rejects domestic comfort, defining his purpose through struggle and knightly duty.
Sansón Carrasco secretly encourages the third expedition, planning to intercept and cure the knight in disguise. Sancho secures assurances regarding his wages, though Quixote refuses fixed pay, adhering strictly to chivalric tradition. Under cover of nightfall, master and squire ride out once more toward El Toboso.
Riding through the night, Quixote reflects on why men seek enduring fame through arms, letters, or holy martyrdom. He acknowledges that Christian saints achieve higher glory than pagan heroes, yet claims knight-errantry serves divine purpose by defending justice. Sancho questions whether simple faith might be easier than fighting giants.
Quixote and Sancho enter El Toboso past midnight, searching quiet streets for Dulcinea's palace. Silence and dark shadows frustrate their search, as neither man actually knows where she lives. Quixote relies on romantic imagination while Sancho grows anxious about being caught wandering in the dark.
Fearing exposure, Sancho spots three peasant women riding donkeys and claims one is Lady Dulcinea accompanied by handmaidens. Quixote sees only rough farm girls smelling of garlic, but Sancho insists enchantment has blinded his vision. Quixote drops to his knees, accepting that evil sorcerers transformed his ideal lady into a coarse rustic.
Traveling onward, they meet a wagon carrying actors dressed as Death, an Angel, an Emperor, and a Fool for a festival play. When the Fool frightens Rocinante and causes a fall, Quixote prepares to fight the troupe. Sancho convinces him to stand down, noting that actors are not real knights.
Resting in a grove at night, Quixote hears another knight boasting nearby of his martial exploits. The stranger claims to have defeated every knight in Spain, including Don Quixote of La Mancha. Insulted by this claim, Quixote steps forward to challenge the rival knight to formal combat at dawn.
While their masters prepare for combat, the rival squire engages Sancho in friendly conversation over wine and provisions. The rival squire wears an enormous artificial nose that terrifies Sancho. Despite the frightening appendage, the squires find common ground, agreeing that serving knight-errants is a perilous path to fortune.
At dawn, Rocinante charges unexpectedly fast while the rival knight's horse balks, allowing Quixote to unseat his opponent easily. Unlacing the fallen knight's visor, Quixote and Sancho discover the face of Sansón Carrasco. Quixote concludes that sorcerers morphed Carrasco's likeness onto his defeated foe to rob him of true glory.
Carrasco recovers from his bruised ribs, nursing deep humiliation over his failed plan to defeat Quixote and force his return home. His companion Tomé Cejudo abandons the scheme, but Carrasco vows revenge born of anger rather than concern for Quixote's sanity. The plot to cure the knight transforms into personal enmity.
Don Diego de Miranda, a prosperous country gentleman in a green coat, joins Quixote and Sancho on the road. Diego describes his modest, orderly life devoted to charity, hunting, and family, presenting a sharp contrast to Quixote's erratic idealism. Quixote defends his calling, defining knight-errantry as active virtue in a corrupt world.
A cart carrying two fierce lions for the King approaches on the highway. Ignoring warnings from Diego and the keeper, Quixote insists on fighting the beasts to prove his valor. When the keeper opens the cage, the male lion simply stretches, turns his back, and lies down, leaving Quixote victorious by default.
Quixote spends four days as a guest at Don Diego's estate, charming his host with lucid conversation about literature and poetry. He reviews the verse of Diego's son Don Lorenzo, offering praise while encouraging noble ambition. Diego marvels at how sane Quixote appears until chivalry is mentioned.
Leaving Diego's home, Quixote and Sancho meet students traveling to the wedding of Camacho the Rich and the fair Quiteria. The students discuss how Quiteria loves the poor youth Basilio, yet her father arranged her marriage to wealthy Camacho. Sancho defends wealth while Quixote champions true affection.
Arriving at the festival, Sancho marvels at giant cauldrons, roasting meats, and abundant food prepared for hundreds of guests. Skewer in hand, Sancho openly praises Camacho's generosity, favoring rich comfort over heroic poverty. Meanwhile, Quixote watches the elaborate allegorical dances staged for the bride and groom.
During the ceremony, Basilio appears pale and despairing, hurling himself onto a sword before the crowd. Dying, he begs Quiteria to marry him so his soul may rest, and Camacho agrees out of pity. Once the vows are spoken, Basilio leaps up uninjured, revealing a hidden scabbard trick that wins his bride.
Quixote hires a guide to reach the mysterious Cave of Montesinos, seeking supernatural revelations. Lowered into the dark chasm on a long rope by Sancho and the guide, he vanishes from sight for over an hour. When pulled back up, Quixote appears asleep and awakens claiming extraordinary experiences inside.
Quixote describes an underground palace where the ancient hero Montesinos showed him the enchanted heart of Durandarte. He claims to have seen Lady Dulcinea in her enchanted peasant form, begging him for a small loan. Sancho openly doubts the story, recognizing details borrowed from his own earlier lie about Dulcinea.
At a countryside inn, Quixote meets Maese Pedro, a traveling puppeteer accompanied by a divining ape. The ape answers questions about present and past events, while Pedro sets up his wooden puppet stage. Unbeknownst to Quixote, Pedro is actually Ginés de Pasamonte, the galley slave he freed in earlier adventures.
Cervantes deepens his satire as self-aware characters encounter a knight who has read his own famous past.