On the road, Don Quixote and Sancho encounter a wagon filled with actors in costume. Don Quixote stops to speak to them, but one of the costumes frightens Rocinante and the horse throws Don Quixote to the ground. One of the actors imitates Don Quixote’s antics by stealing Dapple and reenacting the scene. Don Quixote rides Rocinante up to the wagon to avenge the injury but stops short when he sees the whole company lined up in the road, armed with rocks. Sancho talks his master out of attacking the group, pointing out that the actors are not knights and that they returned Dapple unharmed.
While sleeping in a grove, Don Quixote and Sancho meet another knight who claims to be pining away for his mistress, Casildea de Vandalia, to whom he recites poetry. The narrator calls him the Knight of the Wood and calls his squire the Squire of the Wood. Sancho and the Squire of the Wood go off into the night to talk while Don Quixote and the Knight of the Wood stay where they are to talk.
Sancho and the Squire of the Wood eat and drink while discussing their shared expectation that their masters will make each of them a governor of an isle. They also tell each other about their children. Sancho laments Don Quixote’s madness but says that he is honest and pure, unlike the Knight of the Wood, who, according to the Squire of the Wood, is quite a rogue. Sancho declares that he is a great taster of wines, and the two of them drink until they pass out, still holding the wine flask.
Meanwhile, Don Quixote and the Knight of the Wood discuss their knightly adventures. The Knight of the Wood tells Don Quixote that his lady has sent him into the world to make all knights proclaim her beauty. He says that his greatest conquest was his defeat of Don Qui-xote de la Mancha. Don Quixote tells the Knight that this cannot be possible and challenges him to a duel. The Knight of the Wood accepts but says that they must wait until morning. They rouse Sancho and the Squire of the Wood, who discuss whether they too should fight.
At dawn, Sancho sees the Squire of the Wood’s nose and becomes so frightened by its size that he scurries up a tree before the duel. The Knight of the Wood dresses in such fine, shiny material that he is renamed the Knight of the Mirrors, but he refuses to show Don Quixote his face. Don Quixote pauses to help Sancho into the tree, throwing off the timing of the duel. As a result, the Knight of the Mirrors cannot get his horse going again fast enough, enabling Don Quixote to knock him off his horse quite easily. Don Quixote removes the Knight of the Mirrors’s visor, revealing Sampson Carrasco. Don Quixote does not believe that Sampson stands before him; he thinks that he is still under an enchantment. The Squire of the Wood removes his pasteboard nose and reveals himself as Thomas Cecial, Sancho’s neighbor. Sampson confesses Dulcinea’s beauty, and Don Quixote spares him.
Sampson reveals that he has been plotting with the priest and the barber to vanquish Don Quixote and to order him to go home for two years. Samson’s squire leaves him, but Samson vows revenge on Don Quixote.