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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.

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 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.

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.

The evil work of the Eagle takes a new turn when the commandante's wife, Raquel, visits Quintana and Fuentes and shows them an eagle feather, proving that she belongs to the conspiracy. She informs them the Eagle is furious over the loss of the gunpowder and that they must recover it if they hope to stay alive.

Another stranger with an eagle feather spells trouble for Zorro when Perico, a recent arrival, sees a gypsy girl trying to pay for a purchase with several gold nuggets. Diego and Alejandro realize that news of a gold discovery will cause a rush of "gold fever" and their peaceful way of life will be threatened, so they try to suppress the news.

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

Sergeant Garcia and the other soldiers are amazed one morning when every musket seems to misfire. When they check their gunpowder, they realize it has been replaced with charcoal. A search of the cuartel reveals that all of the gunpowder has been stolen, leaving the post defenseless.

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.

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.

Raquel's ambitious plans for her husband appear to end when she receives a letter from him. She had been promised by the Eagle that he would be made governor of California, but her husband wants her to join him in San Diego, for he plans to sail back to Spain. Realizing the Eagle will not let her go, she tries to sneak out of the pueblo, only to be caught by Quintana.

The kidnappers send word that Anna Maria must meet them if she wants proof her father is still alive, but Diego warns her it is a trick. Romero argues that she must go, so she agrees to go with him, Garcia and Reyes.

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.

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.

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.

Capitan Arrellanos refuses to help the Rebatos any longer in their attempts to kill the governor. Instead, he chooses another plan designed to make him the head of the government. He asks the governor's daughter to declare her father too ill to continue in office. Furious at this request, Leonar refuses to cooperate. She then tells her father of the aide's plot.

Estevan again becomes a problem for Diego when he decides to earn some easy money. Los Angeles is preparing for its annual horse race and Estevan would like to win the prize money, but his horse seems unlikely to win. His luck changes when he comes across Zorro's horse, Tornado, grazing in a hidden field, and he captures the animal.

The governor of California is attacked during a visit to Los Angeles with his daughter and aide, and barely escapes with his life. Taken to the de la Vega house to recover, he is much too weak to travel for several days. The aide, Capitan Arrellanos, tells Diego he suspects the attack to be the work of the Rebatos, a group that wants to sever ties with the government in Spain.

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.

Don Sebastian, a friend of the de la Vegas, is growing impatient at the delay of the stage to Monterey, for he is carrying a purse full of gold and is afraid it may be stolen. While waiting in the tavern with Diego, he makes the mistake of mentioning the gold and is overheard by three crooked entertainers.

Two indentured servants who wish to marry find that the law states they must have the permission of their masters. Buena, who works in the de la Vega hacienda, is told she is free to marry, but her boyfriend, Romaldo, is not so fortunate. One of his co-workers also wants to marry Buena so he convinces their boss that Romaldo plans to run away after the ceremony.

Anita is still hoping to find her father, but Sergeant Garcia has decided she is nothing but a liar and wants to send her back to Spain. Only Diego believes her story, and he tells her she needs to supply some proof of her father's existence.

Diego continues his investigation into Señor Verdugo's business by riding to his house, where Verdugo greets him and Bernardo with his arm in a sling. Although Verdugo claims an old injury is bothering him, Diego suspects he may be the leader of the robbers, so he sets a trap.

Sergeant Garcia returns from escorting Padre Simeon on a trip from San Diego and is surprised to find that almost everyone in Los Angeles has contracted the measles. The doctor has placed the entire pueblo under quarantine and restricted residents to their homes. Even the soldiers cannot leave the cuartel.

Diego's uncle, Estevan de la Cruz, arrives in Los Angeles for an unannounced visit and surprises the de la Vegas when he tells them he plans to be their house guest. Furthermore, he expects them to give a lavish party to welcome him. All of this angers Don Alejandro, but to head off a family dispute, Diego convinces his father that Estevan will leave soon.

Estevan still hopes to marry the wealthy Margarita but he knows that Zorro will continue to oppose him. Don Alejandro suggests that if Estevan were to settle down and begin farming, Zorro would realize that his intentions are honorable. He gives the visitor a small plot of land and wishes him well in his endeavor.

Capitan Arrellanos continues his attempts to rule California by hiring Carmelo, a recent arrival to the pueblo, to kill the governor. Diego and Bernardo overhear the plan but don't act at once, hoping instead to learn who the other conspirators are. The governor has begun to recover and spends his time sitting outside on the patio, which prompts Don Alejandro to give a party to celebrate his better health.

Capitan Briones escalates his campaign against Joaquin by ordering that a peon be whipped until he reveals the rebel's hiding place. Zorro uses his own whip to stop Briones, then frees the peon. Shortly after, the real governor returns and Rico explains that his harsh rule was only imposed to make the capital a well-run city. Rico then convinces the governor to offer the rebel a truce so he can explain his case, planning all the while to kill Joaquin as soon as the outlaw turns himself in.

Los Angeles is suffering from a severe drought and tempers are fraying as crops and animals die from the lack of water. Most of the landowners are helping their neighbors by allowing them access to the few wells and springs that have not yet dried up.

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.

Joaquin and several followers begin a series of raids against the Especials, which culminates with the beating of Capitan Briones. The soldier issues a death order for Joaquin and sends his men after Theresa, intending to force her to reveal his hiding place. She asks Diego to hide her, and with Garcia's assistance, he protects her from the searchers.

Anna Maria Verdugo returns to Monterey from San Francisco and becomes the object of Ricardo del Amo's affection. This friend of Diego's is an incurable practical joker. Ricardo realizes that Diego is also attracted to Anna Maria and hopes to lessen the competition by having some fun at his friend's expense.

When a jovial mountain man, Joe Crane, arrives in the pueblo, he is threatened with arrest for traveling in Spanish territory without official permission. Sergeant Garcia warns him to leave town but changes his mind when Crane buys him a few drinks in the tavern.