In 1850, nine years after the events of the original film, California faces a pivotal moment as it votes on whether to become a state within the United States of America. The masked hero, Alejandro Murrieta, also known as Don Alejandro De La Vega (Antonio Banderas), thwarts a scheme to steal the ballots. However, during a confrontation with a gunman, Jacob McGivens (Nick Chinlund), Alejandro momentarily loses his mask, allowing a couple of Pinkerton agents to recognize him. The very next day, these agents confront his wife, Elena (Catherine Zeta-Jones), coercing her into divorcing him under threat.
Three months later, Alejandro feels the heavy burden of separation from Elena and their son, Joaquin (Adrián Alonso), coupled with the sense that the people no longer require Zorro's protection. Seeking solace, he is encouraged by his childhood guardian, Father Felipe (Julio Oscar Mechoso), to attend a party at the new vineyard of Count Armand (Rufus Sewell). It is here that Alejandro discovers Elena is romantically involved with the count, who admired her during her European travels. After leaving the party in dismay, Alejandro witnesses a massive explosion near Armand's mansion, sparking his suspicions regarding the count.
In a forceful attack led by McGivens on the family of Alejandro's friend, Guillermo Cortez, McGivens aims to seize their land deed. Embracing his alter ego once more, Zorro intervenes to rescue Guillermo's wife and son, yet tragically fails to save Guillermo himself. As Zorro investigates Armand’s mansion, he discovers the count's nefarious intentions to construct a railroad over Cortez's land. During his mission, he reunites with Elena and learns of an imminent shipment, tracking McGivens to a secluded cove for the cargo's delivery. Unexpectedly, Joaquin has also snuck onto McGivens's cart, eager to assist his father. Zorro courageously rescues his son from the clutches of the bandits and, upon inspecting the cargo, uncovers a bar of soap engraved with the name "Orbis Unum."
This revelation leads Felipe and Alejandro to uncover that Armand is the leader of a clandestine society known as the Knights of Aragon, which has been exerting its influence throughout Europe. With the rising power of the United States viewed as a threat, the Knights concoct a plan to plunge the country into chaos before it becomes significantly strong. Personally, Alejandro gets captured by the Pinkertons, who reveal their role in forcing Elena to divorce him to approach Armand without Zorro's interference, as they harbor a disdain for Zorro's vigilantism. Fortunately, Joaquin manages to liberate Alejandro from his captors.
Determined to confront Armand, Zorro meets with Elena and clandestinely listens in on the count's meeting. There, he learns that the soap bars are secretly utilized to create nitroglycerin, which would be supplied to the Confederate army, aided by Colonel Beauregard (Leo Burmester), in a plot to annihilate the Union. Zorro reconciles with Elena, preparing to sabotage the train carrying the explosives. Amidst the turmoil, McGivens arrives at Felipe's church seeking Zorro. In a tragic turn, he shoots the priest and abducts Joaquin.
At the same time, Armand’s butler, Ferroq (Raúl Méndez), discovers and eliminates the Pinkertons, alerting Armand to Elena's deception. Confronting her, Armand captures both Elena and Joaquin, holding them hostage aboard the explosive-laden train and thwarting Zorro’s plans. Unmasked in front of his son, Zorro faces his fate as Armand commands McGivens to kill him. However, Felipe, saved from McGivens's bullet by the cross he wears, arrives just in time to aid Alejandro in overpowering and eliminating McGivens.
A climactic duel ensues between Zorro and Armand atop the train. Meanwhile, Elena successfully assists Joaquin in escaping, cunningly disconnecting a section of the train. In a fierce altercation in the nitroglycerin storage car, Elena bravely ejects Ferroq along with a nitro bottle, which detonates at the feet of Colonel Beauregard, resulting in their demise. As the governor prepares to legally declare California a Union state, Joaquin gallantly rides Zorro's horse, Tornado, to intervene. He bravely flips a track switch to divert the train away from the ceremony. In the final showdown, Zorro and Armand's battle rages to the front of the train. In a desperate moment, Zorro ties Armand to the train, making his escape with Elena just before the train crashes into a rail pile, igniting the nitroglycerin and ending Armand's reign.
With Zorro as a witness, the governor signs the bill, paving the way for California to become the 31st state of the United States. Felipe remarries Alejandro and Elena, reconciling the family as Alejandro admits to Joaquin the importance of Zorro's legacy as a secret family heritage. Supported by Elena, Zorro rides off on Tornado, ready for his next adventure.
