Don Quixote and Sancho join a group of goatherds for the night. They eat and drink together, and Sancho gets drunk on the goatherds’ wine while Don Quixote tells the group about the “golden age” in which virgins roamed the world freely and without fear. He says that knights were created to protect the purity of these virgins. A singing goatherd then arrives. At the request of the others and despite Sancho’s protests, he sings a love ballad to the group. One of the goatherds dresses Don Quixote’s wounded ear with a poultice that heals it.
A goatherd named Peter arrives with news that the shepherd-student Chrysostom has died from his love for Marcela. As Peter tells the story of the lovesick Chrysostom, Don Quixote interrupts several times to correct Peter’s poor speech. Peter explains that Marcela is a wealthy, beautiful orphan who has abandoned her wealth for a shepherdess’s life. Modest and kind, Marcela charms everyone but refuses to marry, which has given her a reputation for cruelty in affairs of the heart. The goatherds invite Don Quixote to accompany them to Chrysostom’s burial the next day, and he accepts. They all go to sleep except for Don Quixote, who stays up all night sighing for Dulcinea.
On the way to the funeral, a traveler named Vivaldo asks Don Quixote why he wears armor in such a peaceful country. Don Quixote explains the principles of knighthood. Vivaldo compares the severity of the knight’s lifestyle to that of a monk’s, and Don Quixote says that knights execute the will of God for which the monks pray.
Vivaldo and Don Quixote discuss knight-erranty, and Don Quixote explains that tradition dictates that knights-errant dedicate themselves to ladies rather than to God. He adds that all knights-errant are in love, even if they do not show it. He describes Dulcinea to the company in flowery and poetic terms. The group then arrives at the burial site, where six men carrying Chrysostom’s body arrive. Chrysostom’s friend Ambrosio makes a speech exalting the deceased, and Vivaldo asks him to save some of Chrysostom’s poetry despite Chrysostom’s request that it be burned. Vivaldo takes one poem, and Ambrosio asks him to read it aloud.
Vivaldo reads the poem aloud. It praises Marcela’s beauty, laments her cruelty, and ends with Chrysostom’s dying wish that famous Greek mythical characters receive him in the afterlife. Marcela herself then appears and claims never to have given Chrysostom or any of her other suitors any hope of winning her affection. She attributes all her beauty to heaven and says she is not at fault for remaining chaste. Marcela leaves before Ambrosio can respond. Some of the men try to follow her, but Don Quixote says he will kill anyone who pursues her. He then follows Marcela to offer her his services.
Don Quixote and Sancho stop to rest and eat lunch. Rocinante wanders off into a herd of mares owned by a group of Yanguesans and tries to mate with them. The Yanguesans beat Rocinante. Don Quixote then attacks the numerous Yanguesans, and he and Sancho lose the battle. While lying on the ground, Don Quixote and Sancho discuss the balsam that, Don Quixote claims, knights use to cure wounds. Don Quixote blames their defeat on the fact that he drew his sword against non-knights, a clear violation of the chivalric code. The two quarrel about the value that fighting has in the life of a knight-errant. On Don Quixote’s orders, Sancho leads him to an inn on his donkey. They arrive at another inn, which Don Quixote mistakes for a castle.