Sergeant Garcia receives a mysterious note from Zorro. The happy soldier reads that Zorro will give himself up. When he returns for his sword, it is gone, so he sadly returns to the cuartel without having captured his foe.

The King's tax collector and his nephew are stopped by conspirators, while on their way to Los Angeles. The conspirators threaten the men unless they cooperate, then they seize Morales' official documents.

The fake Ortega and the magistrado announce they have captured Zorro, and a cart holding a masked man is dragged into the town square. A public unmasking will be held at noon, and Diego fears that an innocent man will be charged with Zorro's "crimes". He also realizes it may all be a trap, so when he dons his costume and rides into the square to free the prisoner, he watches carefully for soldiers.

The evil work of the Eagle takes a new turn when the commandante's wife, Raquel, visits Quintana and Fuentes and shows them an eagle feather, proving that she belongs to the conspiracy. She informs them the Eagle is furious over the loss of the gunpowder and that they must recover it if they hope to stay alive.

Sergeant Garcia and the other soldiers are amazed one morning when every musket seems to misfire. When they check their gunpowder, they realize it has been replaced with charcoal. A search of the cuartel reveals that all of the gunpowder has been stolen, leaving the post defenseless.

Raquel's ambitious plans for her husband appear to end when she receives a letter from him. She had been promised by the Eagle that he would be made governor of California, but her husband wants her to join him in San Diego, for he plans to sail back to Spain. Realizing the Eagle will not let her go, she tries to sneak out of the pueblo, only to be caught by Quintana.

Determined to find the missing jewels, Diego and Bernardo visit a local padre in the hopes he can assist them in their quest, but the trip is to no avail. Later, when Carlos Murietta complains to Sergeant Garcia about the missing trunk he had stored at the tannery, Diego is convinced more than ever that the jewels were hidden by Mordante before his death.

Another shipment of stolen jewels arrives in the pueblo, and Dolores Bastinado unwittingly allows her brother, Pogo, to deliver the cargo to the Murietta brothers. The trunk slips and breaks open, and Pogo spots several of the gems. He realizes the men will try to kill him to protect their secret, but he is seized before he can flee. The Muriettas bind and gag him, then hide him when they hear Sergeant Garcia arriving.

Don Alejandro convinces all of the landowners to sign a document pledging their loyalty to the government, for he has become worried by the growing signs of possible civil unrest. He leaves a copy in the hacienda and takes the original to the capitol, intending to present it to the governor. Alejandro has barely left when Diego receives some unwelcome news. A new administrator has arrived in the pueblo and announced his decision to use the de la Vega hacienda as his headquarters.

An emissary from a foreign power has arrived in the pueblo to discuss plans to help the Eagle in his rebellion. George Brighton, the agent, warns Varga that there must not be any open resistance. His government wants an obedient colony, not one torn apart by internal battles. Varga promises to deliver control as planned, but he continues to worry about Don Alejandro and the other landowners who have pledged their allegiance to the King.

Diego overhears Varga telling his aide that the de la Vega hacienda is so comfortable he intends to make it his permanent headquarters. Knowing his father will soon return and would fight to the death to protect his home, Diego decides to try a risky plan to drive the Eagle out.

Another stranger arrives in the pueblo and travels to the de la Vega hacienda, intending to meet with the Eagle. Diego recognizes the visitor as Count Kolinko, an ambassador from an Eastern European country that has long been interested in controlling California. Since the Eagle has left for the pueblo, Diego manages to convince Kolinko that he is also part of the conspiracy. He almost succeeds in gaining necessary details of the plot.

Bernardo, who is keeping watch over Varga, is disturbed to see Garcia leading a patrol of lancers out of the cuartel. Even more disturbing is the sight of several strangers who drift into the Eagle's headquarters. When he tries to look inside, the gates are locked, so he rushes to warn Diego of the threat.

Diego continues his investigation into Señor Verdugo's business by riding to his house, where Verdugo greets him and Bernardo with his arm in a sling. Although Verdugo claims an old injury is bothering him, Diego suspects he may be the leader of the robbers, so he sets a trap.

The kidnappers send word that Anna Maria must meet them if she wants proof her father is still alive, but Diego warns her it is a trick. Romero argues that she must go, so she agrees to go with him, Garcia and Reyes.

Ricardo asks for Diego's help in winning Anna Maria's heart, for he feels Zorro is too much competition for the two men to overcome. If they can make it seem that Zorro is seeing another woman, Anna Maria will scorn him, thus dropping the field of suitors to a more manageable size. Ricardo plans to accomplish this by dressing as Zorro and serenading Anna Maria's cousin, Milana del Carmen.

When a jovial mountain man, Joe Crane, arrives in the pueblo, he is threatened with arrest for traveling in Spanish territory without official permission. Sergeant Garcia warns him to leave town but changes his mind when Crane buys him a few drinks in the tavern.

Basilio has begun to enjoy his stay in Los Angeles despite Zorro's interference. He is surprised at how well his war bonds are selling, for the landowners have decided to help support the Spanish government as much as possible.

Even with his stolen gold gone, Basilio plans to remain in Los Angeles as a wealthy man. He decides to do so in a way that will let him exert a hold over Moneta Esperon, the attractive daughter of a wealthy landowner.

The recovering governor is beginning to become irritated by his confinement to the de la Vega home. At times it seems as if the only thing that can pacify him is a music box. Almost as soon as it begins to play, the governor falls asleep. Knowing that the Rebatos are still trying to kill the governor, Diego uses the box to lull him to sleep then Bernardo moves him to safety.

Celesta Villagrana and her servant, Montez, are on their way to Los Angeles when a hooded robber stops them and steals her jewelry. The thief knocks the travelers to the ground then departs, leaving Celesta lying there unconscious.