Some young people are having fun near Lorenzo’s tavern in a square in Barcelona. The barber Basilio is in love with Kitri, the tavern owner’s daughter, but Lorenzo wants her to marry a rich man called Camacho.
Bullfighters headed by Espada (Sword) march through the square and hold a bullfight. The dance continues when suddenly Sancho Panza appears, announcing Don Quixote’s arrival.
Don Quixote mistakes Kitri for his lover and declares his love for her. However, Kitri and Basilio, together again, run away to hide in a party where dancers and Espada’s bullfighters are dancing. Suddenly, Lorenzo and Camacho appear, and although Kitri´s friends try to hide her, Lorenzo blesses the union between his daughter and Camacho. Basilio tries in desperation to convince them that he is about to die in order to obtain Lorenzo´s blessing.
The knight Don Quixote believes he is in a fantasy world where he finds his beloved, but it is all a dream from which Sancho awakes him. Meanwhile, everything is ready for the feast in honour of the lovers Kitri and Basilio, and also to bid farewell to Don Quixote and Sancho Panza as they go in search of new adventures.