A hopeless romantic, writer Don Quixote invents stories to fulfil his need for chivalrous adventures. Today, in his study, he is struggling to come up with ideas for his new book. After hours of trying, he falls asleep at his desk and dreams of a beautiful girl named Dulcinea. In love, Don Quixote wakes and, accompanied by his apprentice Sancho Panza, ventures into the village to search for her.
Outside her father’s inn, Quiteria professes her love for Basilio but her mother, spying the young lovers in the crowd, forbids her daughter from seeing the young barber ever again. Quiteria is horrified when she learns of her mother’s plan to marry her to Gamache, a foppish nobleman.
The arrival of Don Quixote and Sancho Panza causes quite a commotion. Don Quixote sees Quiteria and, mistaking her for Dulcinea, attempts to win her attention. Causing a distraction, Quiteria and Basilio sneak off; unknowingly followed by Don Quixote and Sancho Panza.
In pursuit of Quiteria and Basilio, Don Quixote and Sancho Panza arrive at a gypsy camp where they dance around the fire. All are inspired by the romance of the night and Don Quixote grows ever more infatuated with Quiteria.
Exhausted from the dance, Don Quixote collapses into a deep sleep, dreaming an enchanted dream of beautiful fairies. The Queen of the fairies shows him a vision of Quiteria to make him realise she is not his ‘ideal’ but indeed belongs with Basilio. In his epiphany Don Quixote offers the young couple his blessing.
There is much merrymaking as the village celebrates the betrothal of Quiteria and Basilio. As the happy lovers dance, Don Quixote congratulates them, bids farewell to all, and together with Sancho Panza continues on his adventures.