Don Quixote and Sancho come to the river Ebro, where they find a fishing boat. Don Quixote takes the empty boat as a sign that he must use it to aid some imperiled knight. Much to Sancho’s dismay, they tether Rocinante and Dapple to a tree and set off in the boat. They do not go very far, but Don Quixote believes they have traveled two thousand miles. The boat reaches some mills, where Don Quixote and Sancho nearly perish. Some of the millers save them despite the curses of Don Quixote, who believes that the millers hold a trapped knight-errant in their mill, which he calls a castle. The fisherman who owns the boat arrives, and Don Quixote pays him off.
In the woods, Don Quixote and Sancho encounter a Duchess hunting with a Duke. Don Quixote sends Sancho to speak with the Duchess, and she receives him favorably, since she has read the First Part of the novel. She and the Duke resolve to treat Don Quixote according to the customs in books of chivalry. After initially falling off their respective mounts, Don Quixote and Sancho ride with the Duchess and the Duke to their castle.
Don Quixote, seeing that the Duke and Duchess are treating him according to chivalric traditions, feels certain that he is a true knight-errant. Sancho is also thrilled at their reception, but when he asks one of the maidservants, Doña Rodriguez, to care for Dapple, she refuses and they get into an argument. At dinner, the Duke forces Don Quixote to sit at the head of the table. Don Quixote and Sancho amuse the Duke and Duchess with their frivolity. The Duchess takes a particular liking to Sancho, who repeatedly embarrasses his master with his simplicity.
Don Quixote defends knight-errantry to a clergyman who condemns it as frivolity. The Duke promises Sancho that he will make him governor of some isle, and the clergyman storms out in anger. The servants play a trick on Don Quixote by washing his head in a basin and pretending to run out of water in the middle so that he must sit at the table with a mound of suds on his head. The Duke forces them to wash his head in the same way to maintain the ruse.
The Duchess asks Don Quixote to describe Dulcinea. He says he cannot remember what Dulcinea looks like, since her memory was blotted from his mind when he saw her transformed into an ugly peasant by enchantment. The Duchess challenges Don Quixote on the fine points of his love for Dulcinea and asks how he can compare Dulcinea to other princesses when he cannot even prove that she comes from noble lineage. Don Quixote answers that Dulcinea’s virtues raise her above her noble heritage. Meanwhile, Sancho goes off with the servants but comes running back in with several servants who want to clean him with dirty dishwater. Sancho implores the Duchess to intercede, which she does.
After dinner, the Duchess asks Sancho to accompany her to a cool place. Sancho agrees and, after making sure that the room contains no eavesdroppers, entertains her with stories of his adventures with Don Quixote. He tells her that he knows Don Quixote is crazy but that he stays with him out of loyalty. Sancho tells her how he deceived Don Quixote into believing in Dulcinea’s enchantment, but the Duchess convinces Sancho that he is the one who was actually deceived. She says that Dulcinea really was transformed into a peasant girl. Sancho tells the Duchess about his argument with her maidservant, Doña Rodriguez, and the Duchess vows to make sure that Dapple receives good care.
In your analysis of the second part of Don Quixote, you write: "The story of Anna Felix and Don Gregorio tempers Cervantes’s otherwise rampant racism" - Really? This is a masterpiece that has survived the centuries because of it's jawdroppingly brilliant use of irony, but you can't seem to notice the difference between the first narrator (Cide Hamete's translator) and Cervantes himself!
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Any analysis of Don Quixote that doesn't mention the fact that that book is, at the core, a meditation on individual liberty, monetary debasement and the moral horror of involuntary slavery, is incomplete. See the work of Eric C. Graf of Universidad Francisco Marroquín. His article-
Juan de Mariana and the Modern American Politics of Money: Salamanca, Cervantes, Jefferson, and the Austrian School