Sancho tells Don Quixote that since enchanted people have no bodily needs, Don Quixote’s need to use the bathroom proves that he is not enchanted. Don Quixote responds that there are new kinds of enchantment but promises nonetheless to try to free himself. When the party stops for lunch, the priest lets Don Quixote out of the cage, and he and the canon argue about chivalry. The canon marvels that Don Quixote mingles fact and fiction with no concern for the difference.
Don Quixote tells the story of the Knight of the Lake, a fantasy story of enchantment that, he claims, proves the delightful and fascinating nature of stories of knight-errantry. Don Quixote also tells the canon that since becoming a knight-errant he himself has been brave, courteous, and well-bred, enduring many adventures and enchantments.
A goatherd appears, chasing a goat that has wandered into the group’s picnic. The group is amused that the goatherd speaks to the animal. The goatherd then tells the group that he is a peasant but that he knows how to converse with both men and beasts. The priest says that he is not surprised.
The goatherd, whose name is Eugenio, tells the group that he and his friend Anselmo have been driven to the simple life of shepherds by Leandra, a beautiful, wealthy young woman from their town. Leandra ran away with an arrogant soldier who then robbed her and abandoned her in a cave in the woods. Eugenio tells the group that the woods in the area ring with sounds of the sobbing shepherds who are in love with Leandra. Leandra’s father put her in a convent in hopes that over time she would recover her honor.
The goatherd insults Don Quixote and the two of them brawl as the others cheer them on. Don Quixote then sees a group of penitents carrying an icon of the blessed Virgin Mary, on their way to pray for rain. Thinking that the penitents are rogues who have captured a lady, he attacks them and gets a beating from one of them. Sancho thinks Don Quixote has died and mourns his friend in a particularly eloquent elegy. Sancho’s words stir Don Quixote, who agrees to go home until his luck changes.
When Don Quixote and Sancho arrive home, Sancho’s wife (now called Juana), asks him what he has brought her. He puts her off, promising that he will soon be made a governor and that he has tales that will surely amuse her for now. Don Quixote’s niece and housekeeper welcome him home but worry about his madness. They fear he will disappear again, which, Cervantes tells us, he will.