A middle-aged man named Alonso Quixano, a skinny bachelor and a lover of chivalry romances, loses his mind and decides to become a valiant knight. He names himself Don Quixote de la Mancha, names his bony horse Rocinante, and gives his beloved the sweet name Dulcinea.
In a few days’ time, Don Quixote puts on a rusty suit of armor and sets out on his first sally. He is knighted at an inn, which he takes to be a castle, defends a young shepherd from his angry master, and receives a beating from some merchants, who are ignorant of the rules of knight-errantry. He returns to his village to recover.
While Quixote is sleeping off his injuries, his friends the priest and the barber decide to burn most of his chivalry books, which they blame for his madness and recent injuries. Quixote takes this to be the work of evil enchanters, who generally plague knights errant. He enlists a peasant named Sancho Panza to be his squire, and they set off for the second sally.
In their travels, Sancho and Quixote encounter many imaginary enemies – giants that turn out to be windmills, enchanters that turn out to be angry muleteers, abductors who are peaceful friars. Wherever they go, people mock them and give them beatings, because their ideas are so strange and ridiculous. They free a group of prisoners, who thank them by pelting them with stones. They meet all sorts of interesting strangers, many of whom are involved in unhappy love affairs. They attend the funeral of a man who died of love for a beautiful shepherdess, and they inadvertently help to reunite several estranged couples. A large, motley cast of characters assembles at a small inn, where misunderstandings and reconciliations follow one another an lighting speed. The barber and the priest disguise themselves and drag Quixote back to the village in a wooden cage, hoping to cure his madness. At the end of part one, he is bedridden and down at heart.
Part two finds Quixote a month older, and eager to set out on his third sally. He learns from the student Carrasco that his adventures thus far have been recorded in a very popular chivalry romance, which has made him and Sancho very famous. Within a few days, Quixote and Sancho set out for El Toboso to obtain Dulcinea’s blessing. But neither of them knows where Dulcinea lives, because there is no such person in real life – only a peasant girl named Aldonza, very unlike the ethereal princess of Quixote’s imagination. To mend this inconsistency, Sancho tells Quixote that a coarse-looking peasant girl they meet on the road is, in fact, the enchanted Dulcinea. Quixote is miserable to see his beloved take such an incongruous shape.
When they get back on the road, Quixote battles with the Knight of the Forest; this stranger is actually Carrasco in disguise, trying to trick Quixote into returning to the village. Quixote wins the battle, and Carrasco slinks away in shame. Quixote and Sancho Panza have several adventures: they stay with a gentleman, attend a lavish wedding, and investigate the Cave of Montesinos, where Quixote claims to have seen magical, implausible sights.
They become friends with a Duke and Duchess, who are fans of the first part of the history. The Duke and Duchess give them an extravagant welcome, but they play many cruel tricks on them. In one elaborate scenario, an "enchanter" tells the friends that Sancho must lash himself thousands of times if Dulcinea is to be disenchanted.
When the Duke finds out that Quixote has promised Sancho an island as a reward for his service, he makes Sancho the governor of a small town. He expects to humiliate the illiterate, ignorant peasant, but Sancho turns out to be a wise and gifted ruler. After a week, though, Sancho tires of his difficult responsibilities and begins to miss life as Quixote’s squire. He resigns, and he and Quixote resume their adventures.
The two friends continue to meet many interesting strangers. They become friends with a gallant captain of thieves and a wealthy gentleman in Barcelona. Quixote battles with a mysterious Knight of the White Moon. It is Carrasco; this time he wins the battle, and as his prize demands that Quixote and Sancho return to the village. Quixote grows sadder and sadder, and begins to lose hope of Dulcinea’s disenchantment.
When they return to the village, Quixote becomes very sick. After a long sleep one day, he announces that he has regained his sanity. He now scorns knighthood and detests chivalry romances. There is no more Don Quixote; he is Alonso Quixano the Good. Soon afterward, he dies.