The people are having fun on a square near Lorenzo’s tavern in Barcelona. The cheerful and playful Kitri, the daughter of the tavern owner, is here, together with the Barber Basilio, who is in love with her. Lorenzo does not welcome the poor groom. The rich nobleman Gamache, who also wants to marry Kitri, is more to his liking. The crowd rejoices at the arrival of the street dancer and the toreador Espada. The appearance of the knight Don Quixote is greeted with surprise. The traveller is invited to the table. Girls laugh at the fat Sancho Panza. Don Quixote is struck by Kitri’s beauty. Was she the one, who visited him in his dreams as the beautiful Dulcinea?
A gypsy camp. Gypsies are entertaining their guests. Don Quixote imagines danger everywhere and he engages in a battle with a windmill.
Sleeping Don Quixote is pursued by visions: he is in the kingdom of the dryads, and among them he sees Kitri in the form of the beautiful Dulcinea.
The youths are dancing and celebrating in the tavern. Kitri and Basilio are among them. Kitri’s father finds the lovers. Gamache is to be Kitri’s husband. Basilio feigns his suicide. Kitri begs Don Quixote to convince her father to honour Basilio’s dying wish – to bless their love. As soon as Lorenzo grants his daughter's wish, Basilio “comes back to life”.
The wedding of Kitri and Basilio. Don Quixote is in a seat of honour. Wishing the young couple happiness, the noble knight sets off in search of new adventures.