Master Peter, a great and well-renowned puppeteer, arrives at the inn with an ape that whispers people’s fortunes into Master Peter’s ear. Sancho tries to pay Master Peter to tell what his wife is doing now, but Master Peter falls to his knees, and the ape praises Don Quixote profusely. Don Quixote is flattered but believes Master Peter has made a pact with the devil. He asks the ape whether the incident in the cave was true or false, and the ape replies that some parts were true and some false.
Master Peter puts on a puppet show for Don Quixote. The puppet show depicts the travails of a knight who goes to rescue his wife from foreign lands. Don Quixote becomes so convinced that the show is real that he attacks and destroys the entire set. He explains that his enchanters bear responsibility for his actions because they made him believe that the puppets were real. Don Quixote pays Master Peter for his troubles nonetheless. He also treats the guests to a meal and pays the innkeeper.
Cervantes says that Cide Hamete Benengeli swears that Master Peter is actually Gines de Pasamonte, the galley slave whom Don Quixote frees earlier near the Sierra Morena. Benengeli then returns to the narration.
Don Quixote and Sancho meet up with the army from the village whose magistrates brayed like asses. Don Quixote tries to talk the men out of attacking the other village, saying that one man cannot possibly insult an entire village. He nearly persuades the villagers and then Sancho takes over. Sancho explains that braying is nothing to be ashamed of and begins to bray himself. Thinking that Sancho is mocking them, the villagers attack him and knock him unconscious. Don Quixote runs away. The other villagers never show up to battle, so the braying village goes home victorious and happy.
Don Quixote berates Sancho for stupidly braying to a group of villagers already sensitive to the subject of braying. He explains that he retreated because a knight should not act out of temerity. Sancho brings up the question of his wages again, and Don Quixote gets so angry that he tries to send Sancho away. Sancho, however, apologizes.
The account of Montesinos’s Cave marks the high point in Don Quixote’s imaginative madness. Don Quixote recounts his dream to Sancho and to Basilio’s cousin with such detail and texture that, were it not for Sancho’s objections, we might wonder whether the story is real. Don Quixote no longer speaks about things that other people can see and use to judge him a madman. In this instance, Don Quixote has the authority to transform a half hour in a dark cave into three days in a crystal palace. The story, in all its fantastic detail, reveals Cervantes’s talent for storytelling and stands out from the rest of the novel as a unique display of imagination and descriptive force. The description is closely modeled on Trojan hero Aeneas’s encounter with Dido in the underworld in Virgil’s Aeneid. Only Sancho, assured by the knowledge that he previously deceived Don Quixote about Dulcinea’s enchantment, keeps us from believing the description completely. Nonetheless, Don Quixote’s gentle, caring statement—that he understands Sancho’s bewilderment but that Sancho will soon realize the truth—suddenly seems more plausible than Sancho’s rational argument.