The second season of Zorro opens with Don Diego and Bernardo visiting Monterey, California. They have been sent there by a group of Los Angeles investors to look over an import business. The visitors have barely arrived in town when two men burst into their room and demand the investors' money. Diego claims he doesn't have it and the men leave when the innkeeper investigates the disturbance. All they take is Diego's watch, but he suspects something more serious is wrong. Diego sets to work by visiting Señor Verdugo, owner of the business that's for sale. The merchant appears to be legitimate, but Diego tells him that several potential investors have been robbed on their way to Monterey so he must check before recommending the investment. He implies that the men who broke into his room are linked to Verdugo, thus angering the older man. Verdugo refutes his accusations by introducing Diego to Romero Serrano, a courier who has arrived safely from Santa Cruz. Diego also meets Anna Maria, Verdugo's daughter, who openly dislikes him for questioning her father's integrity. Later, Romero and Anna Maria see Bernardo carefully carrying a saddle bag into the inn, which makes them think Diego has brought the money after all. They accuse Diego and demand that he open the bag, but he refuses, for it contains his Zorro costume. Bernardo manages to confuse them, and switches the contents with some of Diego's clothes. Two men in the hotel lobby attract Bernardo's attention and he sees that one of them has Diego's watch. The servant tries to follow them but is taken prisoner, to be held hostage until Diego turns over the money. That night, Diego rides as Zorro and rescues his friend, barely escaping a shot fired by an unknown assailant. He returns the fire and wounds him, but the man escapes.

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. He tells Verdugo the money is being sent via the Guadalupe Trail and should be arriving shortly, but a servant overhears him. Unfortunately, Sergeant Garcia and Corporal Reyes, who have been sent with the money along the Camino Real, decide to take a shortcut and use the Guadalupe Trail. When Zorro and Bernardo arrive at the trail, hoping to catch the robbers, they're amazed to spot the soldiers riding into a trap they have inadvertently helped set. Zorro is unable to reach them in time, for Tornado had to be left home to avoid suspicion. The robbers take the money and order the soldiers to dig their own graves, but Zorro overpowers the guards and frees Garcia and Reyes. Just then, Verdugo arrives, apparently confirming Diego's theory that he is the mastermind. In reality, Verdugo has been lured there by his servant, who plans to kill him. Zorro saves the merchant, who explains that he sent his men there to help Garcia and didn't know that his servants were the robbers.

Lieutenant Rafael Santos is ambushed on his way to Monterey and left for dead when the ambushers take his identification and uniform. One of them, a killer named Anastacio, puts on the uniform and rides to Verdugo's, where Diego is discussing the investment deal. The real soldier is not dead, however, and his beautiful white horse stands guard by his side. Anastacio tries to drug Sergeant Garcia, hoping to steal his money belt, but the plan fails and the money is delivered to Diego. The Verdugos will take the money to San Francisco to invest it, with the fake Santos and Romero acting as guards. Diego and Bernardo then head back to Los Angeles. On the way, they discover the real Santos lying in the road. He tells them his name and faints, but they have learned enough to know the Verdugos are in trouble. Diego takes the soldier's horse and sets off after the merchant and his daughter, who have been attacked by the fake Santos. The bandit and Zorro engage in a sword fight and the masked man wins. He orders Anastacio to name the other thieves. Just then, Romero kills Anastacio, claiming he was too upset to think clearly. Zorro warns the travelers to be careful on their way home to Monterey, then rides off into the night.

After the Verdugos return to Monterey, Anna Maria enters their home and discovers that her father is missing. Pablo, their former servant, tells her the old man is being held hostage and will be killed unless she hands over 45,000 pesos believed to be in the house. Diego and Bernardo arrive and Pablo slips away, warning Anna Maria that her father will be killed if she tells anyone of the kidnapping. Although she won't admit it, Diego discovers what has happened, and he asks the local commandante to send a guard to the Verdugo hacienda. This angers Romero, who claims it will endanger Verdugo's life, and he convinces Anna Maria to send Diego away. When he leaves, she finds the money hidden in a secret panel, and she gives it to Sergeant Garcia to deliver to the kidnappers. Zorro visits her that night and she tells him of her actions, prompting him to rush to Garcia's aid. The sergeant has been ambushed by the thieves, but Zorro tricks them and learns Verdugo is being held in the blacksmith's shop. While Zorro is fighting the blacksmith, Garcia lets Pablo sneak Verdugo past him, putting the merchant in mortal danger.

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. Don Alejandro arrives from Los Angeles and wants to ask the army to surround the area until the others convince him of the danger. That night Anna Maria meets with the kidnappers and tearfully greets her father. The masked men tell him to ride into town for the money while they hold his daughter hostage, then order Garcia and Reyes to stay behind. Verdugo leaves with Romero, whom Alejandro recognizes as a criminal thrown out of Los Angeles. Romero pulls out a knife and orders Verdugo to give him the money. Later, one of the kidnappers announces that Romero and a monk have returned with the money. To the thieves' surprise, they see that the monk is really Zorro, who uses Romero as a shield. Pablo kills his cohort in cold blood, forcing Zorro to engage the kidnappers with his sword. Aided by Garcia, he defeats them and sets Anna Maria free. With the robbers safely behind bars, the travelers prepare to head back to Los Angeles, where Diego has promised to deliver a love letter from Anna Maria to Zorro.

Before he returns home, Sergeant Garcia angers Theresa, a tamale vendor, when he tries to carry out the orders of the acting governor. Luis Rico has decided that all of the vendors must be removed from the plaza despite their objections, and Diego promises Theresa he will try to help. She shows her appreciation with hugs and kisses, thereby angering her boyfriend, Joaquin Castenada, who was watching. Joaquin starts to say something to her but is knocked aside by Capitan Briones, leader of a band of soldiers named "Especials". The Especials have come to carry out Rico's orders and do not report to Garcia, who objects to their brutality. Joaquin tries to attack the soldiers but is stopped by Diego and Garcia, who know he would be killed. Briones arrests Theresa, and Bernardo must hit Joaquin with a mallet to keep him from sharing her fate. Diego tries to reason with Rico but he remains firm, for this is his first command and he wants an orderly city. He allows Diego to pay Theresa's fine and they head back to her stand. Joaquin has recovered and berates Diego for stopping him, but the Especials arrive again and the impetuous youth is arrested. Briones plans to beat him to death to teach the other peons a lesson and Zorro must free him. When darkness falls, Zorro sneaks into the fortress and tells Joaquin to insult the guards until they open his cell to discipline him. When they do, Zorro drops down on them and locks them inside, taking Joaquin into the hills to hide. The boy vows to return, and Zorro knows the matter is far from over.

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. The situation deteriorates further when one of Joaquin's men is killed, which prompts his threat to kill two soldiers in return. Briones sees this as an opportunity to increase the size of his forces as well as to remove two irritants, Garcia and Reyes. He orders the two soldiers to patrol the town, wearing the white armband of the Especials, in the hope that Joaquin will choose them as his victims. The evil plan seems to work, as Joaquin sneaks into the city and sees the unsuspecting soldiers. Zorro, who has followed Joaquin, sees that the Especials are massed within the fortress, ready to attack as soon as they hear the men killed. He stops Joaquin to tell him of the trap, then fires two shots into the air. The Especials rush out, only to find the street deserted except for a confused Garcia and Reyes. Joaquin, unfortunately, still distrusts Zorro's motives.

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. Meanwhile, Briones puts Theresa in jail until Joaquin surrenders. Diego intervenes and arranges for her to carry the truce offer to Joaquin, offering to go along to help convince the outlaw to surrender. Diego and Theresa succeed, but later, as Joaquin rides into the pueblo, the soldiers are lying in wait. Just as they are about to kill Joaquin, Zorro spots the hidden soldiers and narrowly rushes the outlaw to safety. Rico and the Capitan tell the governor it was Joaquin who broke the truce, and the angry official orders the troops to capture the rebel dead or alive.

The broken truce has convinced Joaquin that Diego cannot be trusted and, that if not for Zorro, he would have been killed. When Diego and Bernardo ride to his camp to explain, the rebel leader orders his men to lock the visitors in leg irons until he can decide upon a suitable fate for them. Joaquin announces his plans to kill the governor the next day while he visits a local shrine. When he tries to ride there, however, Joaquin is accidentally captured by Sergeant Garcia. The sergeant takes Joaquin and Theresa to Rico and the corrupt official decides to use the rebel to help him gain control. He tells Briones to escort Joaquin to the shrine, where the murder will be carried out. If Joaquin refuses, Theresa will die. Zorro, having freed himself and Bernardo, stops Joaquin just as he is about to kill the governor. Hoping to make the two men settle their differences, Zorro puts them in leg irons and gives each of them the other man's key. He then rides to the jail to free Theresa, but Briones draws his sword and prepares for a fight. The governor and Joaquin arrive and order the battle stopped, for the truth has been told. Rico is shot while trying to escape and Briones is taken prisoner. The governor orders all charges against the rebels dropped and declares a fiesta to be held to celebrate the end of Rico's reign.

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. Diego is shocked when a sorrowful Sergeant Garcia places him under arrest for being a horse thief, but when he asks the name of his accuser, he's even more surprised. Garcia's answer is "Julius Caesar", and Diego realizes Ricardo is behind the incident. He tells the sergeant and Garcia confronts Ricardo, who claims it was only a harmless prank. This and several other pranks make Garcia think Ricardo is pulling another joke when he claims to have overheard two men plotting to steal an army payroll. Bernardo has also overheard the men and tells Diego, who realizes Zorro must ride again. When he sees Garcia and Reyes tied up and the money gone, Zorro sets out after the robbers. He finds them and receives some unexpected help from Ricardo, who is riding nearby with Anna Maria. The two men defeat the robbers, but Ricardo discovers he has another rival when Anna Maria asks Zorro to escort her back to town.

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. Diego sees this as a chance to cure Ricardo of his fondness for practical jokes. He arranges for Garcia to arrest his friend, and charge him with all of Zorro's crimes. The sergeant realizes Ricardo cannot really be Zorro, for he saw the outlaw and Ricardo side-by-side when the payroll was robbed. Unfortunately for Ricardo, the commandante chooses not to believe this, for Ricardo has angered him with his jokes. Also, killing the notorious Zorro would be a help to his career, so he orders Ricardo hanged. Aghast at this turn of events, Diego realizes he must save his friend from death. He does this in dramatic fashion by shooting a flaming arrow through the noose, which drops Ricardo to the ground. Before he leaves, Zorro forces Ricardo into a watering trough and warns the shaken man that he will punish anyone who impersonates him. In return for his humiliation, Ricardo swears vengeance on Zorro.

Diego doesn't know that Ricardo has developed a hatred for Zorro. He makes matters worse when he substitutes a block of wood for a box of chocolates intended for Anna Maria. When she opens her present and Ricardo sees the wood, complete with a carved "Z", he decides to kill his unmask his foe. Ricardo plans to draw Zorro out of hiding by placing notices throughout town that accuse the outlaw of being a coward and challenging him to a duel. Diego tries to ignore Ricardo but eventually is forced to defend his honor. When he rides to where his friend is practicing, Diego is surprised to see that Ricardo is an expert with several weapons, which will make the upcoming contest a difficult one. Unbeknown to Diego or Ricardo, Sergeant Garcia and several others plan to let the duel take place, then capture Zorro and claim the reward. The men hide themselves near the site of the duel and wait for Zorro to arrive. Not long after, the masked man appears and the duel begins. Just as Diego feared, Ricardo is very good with the sword and has no qualms about injuring his opponent. Diego, on the other hand, doesn't want to hurt his friend, so he fights with reduced strength. Even with this handicap, he defeats Ricardo, only to then discover himself surrounded by the reward seekers. Ricardo surprises him by fighting at his side, for the cowardly attack has offended his sense of adventure. Together they fight their way free, and a grateful Zorro makes his escape.

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.

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. In fact, Romaldo does run away, but he does so to find Buena so they can elope. Diego helps her convince Romaldo that it would be best to explain to Don Tomas, the other landowner, how he feels, and perhaps change his mind. Don Tomas refuses to listen and orders Romaldo confined to the ranch as punishment. Lazaro, the scheming co-worker, beats Romaldo and the youth runs away once more. Buena is tricked by Lazaro into coming to the Yorba ranch, where he tells her he is in love with her. Her rejection angers him and he pulls out a knife, forcing a watching Zorro to intervene. Diego had learned that Buena had snuck out and followed her, a lucky decision that saves her life. Zorro and Buena convince Don Tomas that Romaldo is an honorable man and they receive consent to wed. The two servants will continue to serve out their contracts, but now can do so as man and wife.

It is time to send the tax money to the governor, and Sergeant Garcia has a plan to thwart any attempt to steal the funds during the long journey. He orders the town blacksmith to build a huge iron box that requires a special key to open it. The money will be placed in the box and the key sent to the governor by a separate route. Two men, Nava and Crispin, learn of the plan and decide to make a duplicate key which will enable them to steal the money if they can intercept the box. They enlist the help of Moneta, a barmaid, by asking her to flirt with the blacksmith's son in the hopes he will supply a key. This plan fails when the box is completed ahead of schedule and Garcia orders the key sent on its way. During the loading of the tax money, Garcia accidentally snaps the lock shut and it must somehow be opened if the box is to be used. The blacksmith fashions a duplicate key and opens the lock, which is then placed on the box. Having seen this turn of events, Nava and Crispin try to steal the duplicate key, but Bernardo manages to keep it from them. The bandits surprise the small party of guards escorting the box, but the soldiers toss it over a steep cliff, hoping it will be inaccessible to the thieves. Undaunted, Nava and Crispin kidnap the blacksmith and his son and order the blacksmith to construct a new key right there in the ravine. Zorro had followed one of the bandits out of Los Angeles and sees the thieves standing guard over the unwilling blacksmith. The element of surprise lets him overcome the two armed men, and the box and the blacksmith are saved.

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. His good intent proves to be a problem for Diego when Estevan later offers to sell several jewels to his friends. Estevan claims to have bought them in Spain, but Diego realizes the gems are fakes and that if sold, could bring shame on his family name. To prevent this, he tells Bernardo to steal the fakes, only to find they're already missing. Zorro captures the thieves and keeps the fake jewels so Estevan cannot swindle his friends. The thieves are turned over to Sergeant Garcia and Diego thinks the matter is settled, but Estevan has decided there is money to be made in Los Angeles and announces that he plans to extend his stay.

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. Diego and Bernardo are unable to find the horse despite an extensive search, so when Estevan mentions his plans to enter a mystery horse, they suspect he has stolen Tornado. Estevan shows his new acquisition to Sergeant Garcia, who immediately recognizes it as Zorro's horse. The sergeant informs Estevan of this fact, but the greedy visitor simply sees it as another chance to make money, by capturing Zorro if the outlaw attempts to save Tornado. Garcia, Reyes and Estevan set up a guard on the only door into the deserted winery where Tornado is being stabled, planning to surprise Zorro when he walks in. Suspecting a trap, the bandit instead enters through a loft, swings down to mount his prized horse and escapes into the night.

Still hoping to strike it rich during his visit to Los Angeles, Estevan shows a great deal of interest in a young woman when he learns she comes from a wealthy family. Don Alejandro accuses Estevan of only being attracted to Margarita because of her money, but the suitor denies the charges, forcing Diego to dress as Zorro in an attempt to frighten Estevan away. Instead of convincing his uncle to give up his plan, Diego has unwittingly made Estevan furious at Zorro. Hoping to trap the outlaw, Estevan arranges for Corporal Reyes to dress as Margarita and ride in her carriage. Estevan then spreads word around town that he and "Margarita" will be enjoying a quiet ride near the lake that evening. He tells Sergeant Garcia to follow the carriage, so when Zorro next tries to embarrass Estevan, he can capture his masked foe. Zorro does stop the carriage and offers to help Margarita out, only to find it is really Corporal Reyes. He frees himself from Reye's grasp and turns to fight Estevan, who has approached with his sword drawn. Reyes runs to find Garcia, who is trying to escape a pursuing skunk. Zorro forces Estevan into the lake and the two soldiers quickly follow him in to avoid their striped pursuer.

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. The thought of working the land proves too much for Estevan and he announces he is moving back to Spain. His real plan, though, is quite different. He convinces Margarita to leave town with him and they head for the mission to be married, but their trip is interrupted by Zorro, who rides off in the carriage with Margarita. Estevan eventually follows them, but when he reaches the carriage, Zorro is gone. Margarita informs her suitor that she has just learned she can only inherit her father's fortune if she marries a California resident. She then suggests Estevan accept Alejandro's offer and become a farmer. Estevan realizes that his dreams of an easy and prosperous life will not come true in Los Angeles, so he tells Margarita he must return to Spain to fight in a war.

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. Don Hilario is an exception to this policy, though, for he fears his own crops will suffer. A neighbor, Miguel Roverto, a peasant with a small farm, begins to steal needed water. His orange trees are almost dead, and thus he ignores Hilario's warnings. The Alviso brothers, who work for Hilario, catch Roverto in the act and beat him severely, warning him never to return. Roverto's house is later burned to the ground and the angry man vows revenge on Hilario. When Hilario's home burns, suspicion naturally falls on the peasant. An inspection of the ruins yields Hilario's body, and Roverto's gun lying by his side. Zorro finds the hiding man, who tells him that the Alvisos took the musket when they caught him stealing water. Believing that Roverto was framed, Zorro decides to set a trap for the real killers. His plan works, and the brothers are caught and Roverto is cleared of both the murder and the fire. Roverto gets more good news when a sudden storm finally brings rain to the area.

A mystery develops when a teenage girl arrives in the pueblo and asks for directions to a ranch no one has ever heard of. Anita Cabrillo has been studying at a boarding school, and she has come to visit her father, whom she has not seen in many years. Anita attracts a small crowd when she asks about Don Cabrillo, who is unknown in the city, and Diego offers to let her stay at his house until the mystery can be solved. Anita has barely arrived there when she screams, then tell Diego and Don Alejandro that someone tried to enter her room. Alejandro begins to think Anita is subject to delusions, but Diego senses that someone may be trying to scare her out of town for some unknown reason. The intrigue continues when Anita sneaks away that night and rides into the woods. Zorro follows and hears a voice that warns Anita to return to Spain or be killed. Believing her to be in immediate danger, he rushes in to save her. Instead, he scares her into attempting to escape, and only Tornado's great speed enables Zorro to save Anita from riding off a treacherous cliff in the dark.

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. She mentions a package of letters her father sent to her, and Diego asks to see them. Anita goes to her room but quickly returns without them, claiming they have been stolen. When Don Alejandro again voices his doubts about her story, she claims the letters must have been taken by Rafael Gonzales, a driver who brought her to the city from her ship. This further angers Alejandro, who has known and trusted Gonzales for many years, and he arranges for her to leave on the next ship. Anita asks Ruiz, one of the de la Vega servants, to escort her to the mission so she can hide, and she offers to pay him in gold. He agrees and arranges for another man to accompany them, planning to rob the unsuspecting girl. Zorro saves her once more, this time using his rope to prevent her from falling to her death. This adventure makes Anita even more determined to stay in Los Angeles until she finds her missing father.

Don Alejandro remains firm in his wish to send Anita back to Spain and tells the girl to pack her bags. Gonzales arrives to take her to the ship and Anita gives Alejandro a goodbye kiss. She turns to climb aboard the carriage but Alejandro stops her, for Anita is wearing a brooch that he once gave to the mission to be sold at a charity auction. When she tells him her father sent it her in Spain, Alejandro finally believes her story about the missing man. He changes his mind and allows her to stay, then plans to research the sales records to learn who bought the brooch. Meanwhile, Ruiz and his partner, Guerrero, try once again to steal Anita's gold. They tell her to bring it to Castle Rock if she ever wants to see her father again. Anita takes the gold as instructed and is surprised to find Gonzales there, bound and gagged. Gonzales admits to Anita that he is her father and that he sent her to Spain for a good education. He was ashamed to admit his identity to her, for he had lied for years about being prosperous in order to encourage her to succeed. Now it appears they will die together, as Ruiz and Guerrero pull out knives and approach the reunited twosome. Zorro, who has been hiding nearby, steps out of the shadows and stops the killers. The next day, Gonzales and Anita head back to Spain together, happy to be together again at last.

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. Not all of Crane's problems can be solved so easily, however, for when he kisses a passing barmaid, he angers Don Carlos Fernandez so greatly that the landowner attacks the visitor. Crane immediately responds by knocking his attacker to the floor, which causes Fernandez's bodyguard to try to kill the mountain man. Diego deflects the shot, but Garcia is forced to arrest Crane and take him to jail for his own safety. Knowing Fernandez's temper, Diego is sure he will still try to kill Crane, so that night Zorro hides near the jail. Zorro sneaks inside, steals the keys, and frees Crane so he can hide in the hills. The precaution is a wise one, for Fernandez does come to the jail that night. Finding it empty, he vows to track Crane down and kill him, figuring it as an easy chore for Crane is on foot.

Thought to be hiding safely in the hills, fugitive Joe Crane instead has sneaked back into the pueblo hoping to recover his hunting rifle and the load of furs he gathered during the trapping season. He also wants to see Carlotta, the barmaid who accidentally started the fight between him and Don Carlos Fernandez. Determined to kill Crane, Fernandez and his servant Hernando are using a bloodhound named Lobo to track down the mountain man. They take the dog to the pueblo, intending to use Crane's rifle to give the dog his scent, but Diego realizes their plan and makes sure the dog picks up his scent instead. The searchers are amazed when Lobo leads them to Diego, but they find Crane's hat and Lobo picks up his scent. Crane is a wily opponent. He captures the dog in one of his traps, then takes on Fernandez and Hernando. He's helped by Zorro, who dislikes Fernandez, and once again he escapes. Before he goes, however, he steals another kiss from Carlotta, which further infuriates Fernandez.

Don Carlos Fernandez decides to draw Joe Crane into the open by laying claim to the mountain man's furs and burro. Diego tries to end the feud by offering to buy the goods, but Fernandez refuses. Only Crane's death will satisfy him now. When Crane hears that Fernandez has his furs, he reacts predictably and goes to the man's hacienda to fight for his possessions. Fernandez is ready and his men are concealed throughout the grounds, waiting to attack Crane on his orders. Just as he is about to give the command to kill Crane, Fernandez is surprised by the arrival of Zorro, who has suspected a trap. Zorro blocks a cowardly shot at Crane, who then knocks Fernandez unconscious. Hernando sets Lobo after the mountain man, but Crane gives a long whistle to the attacking animal. Surprisingly, Lobo reacts by stopping his charge, then wags his tail as he approaches Crane. The episode ends as Crane heads back into the mountains, his furs safely aboard his burro, and Lobo happily following behind him.

Another problem looms for Zorro when an arrogant stranger arrives in the pueblo and demands the help of Don Alejandro. Felipe Basilio has been sent by the Spanish government to sell bonds to the local citizens in order to help finance the Spanish war effort, but he gets off to a bad start by interrupting Sergeant Garcia's birthday party and throwing his pinata into the trash. Basilio also angers the townspeople by telling them they must buy the bonds, and a Capitan Mendoza arrives to enforce his order. The newcomers try to force Alejandro to persuade the peons, but they must resort to force when sales lag due to the unreasonable levies they have placed on their victims. One such person is the innkeeper, of whom they demand 250 pesos. Basilio is attracted to Moneta, the daughter of a wealthy landowner, and the two visitors temporarily delay their demands. Garcia draws Basilio's wrath by sneaking into the tavern to recover his pinata, and the visitor decides to make his strength known by placing the sergeant in the town stocks. Zorro avenges this humiliation by forcing Basilio to free Garcia, and then places him in the stocks instead.

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. In fact, he and Capitan Mendoza have been able to collect three large chests full of gold. Mendoza suggests that they steal some for themselves before shipping it to Spain, but Basilio has a better idea. He wants it all. The two men construct a delayed action detonator designed to explode when the gold shipment is at sea so that the evidence of their crime will be destroyed. The next day the thieves pack the cases with rocks and load them on a cart that will take them to the ship bound for Spain. Zorro follows the shipment and narrowly saves the driver when the deadly cargo explodes ahead of schedule. Back in the pueblo, Basilio and Mendoza gleefully open the chests expecting to see their stolen gold. Instead, the boxes are full of sand and rocks, with a large "Z" inscribed in each of the lids.

Even with his stolen gold gone, Basilio plans to remain in Los Angeles as a wealthy man. He decides to do so in a way that will let him exert a hold over Moneta Esperon, the attractive daughter of a wealthy landowner. Basilio tells Garcia that Spanish law forbids citizens to possess items made in countries that are at war with Spain. Those that do will forfeit their entire households to those who inform on the lawbreakers. Garcia is soon convinced that this would allow him to become a don himself, and thus leave the harsh life of the army behind. He is tricked into taking Basilio to Don Esperon's home, where he identifies several items as being from England, France and Italy. The sergeant begins to regret his actions, but Basilio tells him he will be hanged for treason unless he cooperates. Zorro makes life miserable for Garcia by promising to carve a "Z" in his hide if he goes along with the plan. During the trial Garcia decides to speak up for Don Esperon, much to the viceroy's dismay. Zorro provides another surprise when he bursts into the courtroom and takes Basilio prisoner. He then uses his sword to cut away parts of his prisoner's clothing, proving that the items came from enemy countries. Zorro then demands that Basilio pronounce sentence on Esperon and the cornered criminal has no choice but to declare him innocent.

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. Bernardo lures Basilio out of his office by offering to take him to Zorro, but the waiting outlaw instead uses his rope to hang the politician upside down in the square. The lancers return to free Basilio and he rides to the de la Vega hacienda to arrest Bernardo. Basilio accidentally discovers one of the house's secret passages. As he begins to explore, he surprises Diego and knocks him unconscious. Having finally solved the mystery of Zorro, Basilio celebrates by donning the black costume and mask, then steps outside on the balcony to savor the moment. Capitan Mendoza, who is waiting outside on guard duty, sees the figure of the infamous outlaw and shoots Zorro dead. Much to his surprise, he discovers he has killed Basilio, thus unwittingly protecting Zorro's secret identity.

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. They begin their plan by mistreating Don Alejandro, and Diego comes to his father's assistance. Avila promptly challenges him to a duel as planned. Afraid that his friend will be killed, Sergeant Garcia kidnaps Diego and leaves him tied up in a deserted shed. As a result, Diego is unable to defend the family's honor and Don Alejandro decides to take his place. Garcia is aghast at this turn of events, for he knows that Don Alejandro cannot hope to defeat the much younger man. He rushes back to the shed, frees Diego and tells him of his father's determination to best Avila. Diego switches to his Zorro garb and rides to the field of honor, where Avila has begun to win the contest. The mismatched duel ends when Zorro defeats Avila and warns him never to return.

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. The padre has brought a large gold chalice to Los Angeles for use in the mission and wants the town to know of its arrival. He asks Diego to take him through the pueblo so the people can see the religious symbol. Diego, who has already had the measles, agrees and helps the padre, who then takes the chalice home for safekeeping. The padre's servant, Carlos, is a former criminal, and the valuable chalice proves too much of a temptation for him. He locks the padre in a closet and takes the chalice, posting a quarantine warning on the door. If no one enters the house, the padre will die of thirst and hunger. Luckily, Diego comes to visit and realizes something is wrong when he sees the sign, for the padre was quite healthy the day before. The padre tells him of Carlos' actions and Diego rushes out to find the chalice. Dressed as Zorro, he tracks Carlos to a cabin where the thief is about to melt down the stolen relic. Zorro stops him just in time. Carlos tries to kill Zorro but is defeated. Zorro then sends him back to town to prove to the padre that he deserves another chance.

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. Arrellanos declares himself acting governor until the wounded man recovers and orders an armed guard placed around the house. Several days later a mysterious stranger tells the capitan that if the governor were to die, he would become the true ruler of all California. Arrellanos succumbs to the temptation and orders the guards removed. This makes Diego and Bernardo suspicious, so while Diego dresses as Zorro, Bernardo uses a secret passageway to keep watch over the ailing governor. This precaution proves wise when a stranger sneaks into the room and tries to kill the governor. Bernardo steps out and knocks the attacker unconscious. Zorro takes the governor to another room and puts the would-be killer in the sick man's bed in his place. Two more men try to kill the governor and Zorro fights them both, but one succeeds in plunging a knife into the covered figure on the bed. Not until the next day do the killers learn they have failed to assassinate the governor, and instead killed one of their own.

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. The governor tells Arrellanos he is to be replaced, so the soldier decides to accept the rebels' offer of help. A Rebato agent provides a drugged bottle of wine to eliminate the governor's guards, so when Sergeant Garcia and Corporal Reyes accept the kind offer of a drink from the capitan, they are soon unconscious. Seeing that the governor is once again unprotected, Diego switches to his secret identity as Zorro to foil Arrellano's plot. The capitan and two assassins creep into the governor's room, but Zorro is ready. Arrellanos manages to escape by threatening to kill Garcia but he is stopped by Bernardo, who drops a large flower pot on the fleeing traitor. The governor doesn't believe his aide is guilty and thus his life remains in danger.

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. An unexpected danger arises when Arrellanos convinces Leonar to make the party a masquerade ball, for the capitan plans to sneak Carmelo into the party in a disguise. At the party, Diego sees that his father and someone else are both dressed as medieval executioners. He suspects the other man may be Carmelo, for this costume would enable him to come near the governor. Another costumed figure enters the ball, for Zorro slips in, determined to follow the executioners. One of them moves behind the governor and raises his axe, spurring Zorro into frantic action to stop the murder. The hooded figure escapes into the crowd, as does Zorro.

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. The capitan and five rebellious dons arrive at the hacienda and openly announce their plan to kill the governor. They tie up his daughter, Leonar, then spring into his bedroom ready for the kill. Finding it empty, they split up to search the house. Zorro attacks them one-by-one, until only the capitan remains free. Unable to surprise the traitor, Zorro engages him in a swordfight and kills him, thus ending the threat to the governor. The music box finally winds down and the governor awakens. He looks out the window and sees his would-be killers tied to a wall, where a huge "Z" has been carved to publicly announce who saved him.

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. Diego asks Sergeant Garcia to place the gold in the cuartel's safe until the stage leaves, unknowingly presenting the thieves with a major setback. To overcome this, Lupita, one of the thieves, pretends to be a fortune teller. She gains Garcia's confidence by telling him she knows he is in possession of a large sum of money, then warns him that someone whom he least suspects will try to rob him that night. The sergeant reacts predictably by sending the lancers out of the cuartel. By now he trusts no one. When Diego tries to visit him, Garcia also sends him away, preferring to lock himself alone in the strongroom. Lupita and her comrades break into the cuartel, surprise the sergeant, and force him to open the safe. The fake fortune teller reminds Garcia that she did warn him he would be robbed by someone he didn't expect, then turns to leave. The escape route is blocked by Zorro, who was alerted by Garcia's strange behavior. Lupita pulls out a knife and tries to fight her way free, but Zorro locks the three villains in a cell. He unties Garcia and tells him a man's friends should be trusted over the word of strangers, and then leaves as mysteriously as ever.

A Chinese boy escapes from a ship in San Pedro's harbor and tries to hide in Los Angeles. He is unable to seek help, for he speaks only his native language. Discovered hiding in Tomas Gregorio's warehouse, he is arrested as a thief. The boy's only hope is a scribbled message he gives to Diego. Not knowing Chinese, Diego sends it to the mission, knowing Father Ignacio can translate it. The reply has not yet arrived when a sailor claims that the boy is an escaped murderer being transported back to stand trial. Vinson, the sailor, convinces Garcia to hand over custody of the prisoner, and he begins the trip back to San Pedro. Father Ignacio then tells Diego that the message says the boy is actually a member of Chinese royalty and is being held for ransom by Vinson. Zorro rides after the seaman and the unfortunate boy, surprising them on a narrow cliffside trail. Vinson and Zorro fight hand-to-hand, and Zorro has to throw the kidnapper off the cliff to save his own life. The boy is taken to a ship that will carry him safely home to China.

Celesta Villagrana and her servant, Montez, are on their way to Los Angeles when a hooded robber stops them and steals her jewelry. The thief knocks the travelers to the ground then departs, leaving Celesta lying there unconscious. Bernardo rides by and sees a piece of jewelry glinting in the sunlight. He stops to pick it up but Celesta awakens and mistakes him for a thief. She screams, and Sergeant Garcia arrives in time to hear her accuse Bernardo, which leaves him no choice but to arrest the mute servant. The case appears to be a strong one and is further strengthened when Montez picks Bernardo out of a line-up. Diego is sure he saw a secret signal passed between Montez and a Señor Lopez who is watching the procedures, which has let Montez know whom to accuse. Hoping to clear his friend, Zorro confronts the two men as they talk that night in the tavern. He accuses them of being the real thieves, but they deny the charges. Zorro then uses his sword to slash open Lopez's coat and the jewelry falls to the ground, thus proving Bernardo's innocence.