After receiving a letter from his father (Roland) in California requesting his immediate return home, Don Diego de la Vega (Langella) resigns his commission as a cadet and sails from Spain to California.
Arriving in the pueblo of Los Angeles, he learns that his father has been replaced as Alcalde by Don Luis Quintero (Middleton), who is backed by the witty and urbane swordsman Captain Esteben (Montalbán), and that conditions in Los Angeles have worsened due to the Alcalde’s and Captain’s corruption.
Diego immediately takes on the persona of a fop to avoid seeming dangerous, fooling the Alcalde and Capitan and, unfortunately, his own father, who perceives him as weak and useless. Determined to restore freedom, Diego secretly takes one of a pair of ancestral de la Vega swords and adopts the disguise of the legendary masked hero El Zorro. His campaign against the Alcalde and the Captain begins to rouse the people against them, while at the same time he meets romances the Alcalde’s beautiful niece Teresa (Archer), whom he grows to love and eventually reveals his secret identity, and simultaneously flirts with the Alcalde’s wife Inez (Sorel) to gain information (and also make Captain Esteban, who has also been romancing her behind her husband’s back, jealous).
When Zorro’s old teacher Frey Felipe is arrested by the Captain and whipped, Diego, warned by Teresa, steps up his campaign, while at the same time his father, wielding the remaining ancestral sword, rouses both the peons and caballeros into rebellion and marches on the Alcalde’s palace. Before Zorro can force the Alcalde to sign his resignation, he is surprised by the Captain. While Don Alejandro and the people overcome the soldiers, Zorro and the Captain duel, resulting in the Captain’s death. Don Luis and his wife will return to Spain in dishonor while the de la Vega father and son raise their ancestral swords in victory.