Set in the indeterminate 1840s, the film opens in a lavish villa in Madrid, Spain, where we find Don Diego Vega (George Hamilton), the quintessential Spanish Don Juan, entangled in a romantic liaison with a gorgeous woman. However, she is not his spouse; instead, she belongs to someone else. Their clandestine affair takes a dangerous turn when her husband, Garcia, unexpectedly arrives, shattering their illusion of safety. Demonstrating considerable flair, Diego engages in a duel against Garcia and his five brothers, wielding swords with finesse. Meanwhile, Diego's mute servant, Paco (Donovan Scott), communicates a letter from Diego's father requesting his return to California, a region then under Mexican rule. The two escape by leaping from a high wall into a waiting carriage.
Weeks later, Diego and Paco land in the village of Los Angeles, greeted by Diego's childhood friend Esteban (Ron Leibman), now the captain of the local guard. They soon uncover the tragic news of Diego's father's untimely death in a horse riding accident — startled by a turtle, of all things. Esteemed Esteban serves as the acting alcalde in the absence of Diego’s father, leading to a gathering of the dons, or landowners, to elect a new leader.
During this assembly, the dons introduce themselves with amusing mismatches of names and regions, such as Don Diego from San Fernando and Don Francisco from San Jose. Ultimately, Esteban is declared alcalde via a rigged vote and, in a rather comical scene, commences his inaugural address to the townsfolk. However, his speech is interrupted by Charlotte Taylor-Wilson (Lauren Hutton), a wealthy political activist from Boston. Sparks ignite between the two despite their opposing views, leading to Diego’s infatuation with Charlotte, who initially turns him down, perceiving him as arrogant.
At Diego's villa, he learns he has inherited Zorro's iconic black cape, hat, and sword, along with a revealing note from his late father stating that he was indeed Zorro, the esteemed hero of the people. Inspired, Diego resolves to don the timeless costume for the upcoming masked ball. On his way, he witnesses a peasant being robbed and valiantly defeats the bandit, reclaiming the stolen funds. He instructs the peasant to announce that 'El Zorro' has resurfaced.
During the ball, Diego dances with Florinda (Brenda Vaccaro) while outside, the excitement about Zorro’s return grows. Unfortunately, Velasquez (James Booth), the local tax collector, identifies Diego and informs Alcalde Esteban. This spurs a duel where Diego escapes, but not without injuring his foot, leading to a noticeable limp.
In the following days, as Esteban's cruelty in pursuit of wealth escalates, Diego is sidelined by his injury. Luckily, his estranged twin brother Ramon (George Hamilton in a dual role) arrives from the British Royal Navy, sporting a flamboyant demeanor and an English accent, now calling himself Bunny Wigglesworth. With Diego recovering, Bunny reluctantly accepts the mantle of Zorro, demanding a revamped costume replete with flashier adornments and replacing Zorro's traditional sword with a whip.
As Bunny takes to championing the peasants, navigating a relationship with Charlotte, Diego's situation grows complicated. Esteban and the landowners become further incensed by Zorro's antics and Bunny's eccentricities. Florinda, eager to flaunt her lavish necklace, persuades Esteban to host another masquerade ball. To mislead Esteban, Diego sends fake invitations to all landowners, encouraging Zorro-like attire. At the masquerade, amidst the crowd of masked Zorros, Diego and Bunny plot to steal the necklace.
After a series of cunning schemes and thrilling escapades, ultimately, Diego attempts to reach out to Charlotte to confess his identity and present her with the stolen necklace, only to discover she already recognizes him as Zorro. However, a spy catches wind of her affections and informs the Alcalde, leading to her arrest and a death sentence.
In a gripping climax, disguised as a monk, Zorro negotiates his life for Charlotte’s, but just as he faces execution, Bunny makes a daring entrance in a dazzling Zorro outfit. Together, they orchestrate a rebellion, leading the peasant crowd to overthrow the Alcalde, leaving Florinda to abandon Esteban.
In the touching final moments, Bunny bids farewell to Diego and Charlotte, riding off to rejoin the Royal Navy, while Diego and Charlotte set off to discuss plans for their future, including their forthcoming wedding — a true tale of love, heroism, and the enduring legend of Zorro.
