In 1850, nine years after the events of the first film, California is voting on whether to join the United States of America as a state. Alejandro Murrieta/Zorro, now known as Don Alejandro De La Vega, foils a plot to steal the ballots, but during the fight with a gunman named Jacob McGivens, he briefly loses his mask. A pair of Pinkerton agents sees his face and recognize him. The following day, the Pinkertons confront Alejandro’s wife, Elena, and blackmail her into divorcing him.
Three months later, the separation from Elena and his son Joaquin, and the feeling that the people no longer need Zorro, are taking its toll on Alejandro. His childhood guardian, Father Felipe, convinces him to attend a party at French Count Armand’s new vineyard. There, Alejandro discovers that Elena is dating the count, an admirer from her time spent in Europe. After leaving the party, Alejandro witnesses a huge explosion close to Armand’s mansion and becomes suspicious of him.
McGivens leads an attack on the family of Guillermo Cortez, Alejandro’s friend, to seize their land deed. Donning his mask again, Zorro rescues Guillermo’s wife and son, but fails to save Guillermo and the deed. Zorro follows McGivens to Armand’s mansion and discovers that Armand plans to build a railroad on Cortez’s land. He also encounters Elena and, learning of an upcoming shipment, he tracks McGivens to a cove where the cargo is delivered. Unbeknownst to him, Joaquin also hitched a ride on McGiven’s cart, having sneaked out of a class trip. Zorro saves his son from the bandits and, examing the shipment, he sees a piece of the cargo – a bar of soap – and the name Orbis Unum on a crate lid. Upon researching the phrase, Felipe and Alejandro learn that Armand is the head of a secret society, the Knights of Aragon, which has been secretly ruling Europe. The United States is deemed a threat to the Knights, so they plan to throw the country into chaos before it can gain too much power.
Alejandro is captured by the Pinkertons, who reveal that they forced Elena to divorce Alejandro in order to get close to Armand and learn of his plans without the aid of Zorro, as they dislike Zorro and his vigilante ways. Joaquin frees Alejandro from captivity. Zorro goes to Armand’s mansion, meets Elena, and eavesdrops on Armand’s meeting. He learns that the soap bars are secretly used as an ingredient for nitroglycerin, which Armand plans to distribute throughout the Confederate army, with the help of Confederate Colonel Beauregard, to destroy the Union. Zorro and Elena reconcile, and Zorro prepares to destroy the train carrying the explosives. McGivens arrives at Felipe’s church to look for Zorro. Unable to find him, McGivens shoots the priest and kidnaps Joaquin.
Meanwhile, however, Armand’s butler Ferroq tracks down and kills the Pinkertons and informs his master about Elena’s deception. Armand confronts Elena, and takes her and Joaquin hostage on the train carrying the explosives, making Zorro unable to destroy it. Zorro is captured and unmasked in front of his son. Armand takes Joaquin and Elena away and orders McGivens to kill Alejandro. Felipe, having been saved from McGivens’s bullet by the cross he wears, arrives, and he and Alejandro overpower and kill McGivens.
Zorro catches up with Armand, and they engage in a sword fight. Meanwhile, Elena has Joaquin escape into the back cars of the train, which she disconnects. Elena fights Ferroq in the nitro storage car and throws him and a bottle of nitro out of the car and at the feet of Colonel Beauregard at their prearranged meeting point, killing them. Further along the tracks, the governor prepares to sign the bill to make California a Union state. Joaquin collects Tornado, Zorro’s horse, jumps off the train, and overtakes it. He hits a track switch, causing the train to harmlessly pass around the ceremony. Zorro and Armand’s duel takes them to the very front of the train engine. Seeing the track is a dead end, Zorro hooks Armand to the train by tying him up on the front of the engine and escapes with Elena. The train crashes into the pile of rails at the end of the track, setting off the nitroglycerin, killing Armand and destroying the train.
With Zorro as an official witness, the governor signs the bill, and California becomes the 31st state of the United States of America. Felipe remarries Alejandro and Elena, and Alejandro apologizes to his son for hiding his identity, admitting that Zorro’s identity is a family secret rather than just his own. With Elena’s support, Zorro rides off on Tornado to his next mission.