The story of the masked rider in Old California opens as Don Diego de la Vega is returning to California from Spain, where he has been studying for several years.

After failing in his attempt to sneak food to the fugitive in the Mission where Captain Monastario has laid siege, Zorro tries to scare the soldiers away by spreading a rumor about the mad monk who supposedly haunts the place.

Captain Monastario's latest plan is to discredit Zorro by having a prisoner who killed a man in a sword fight pose as the masked avenger and rob the local landowners at a dinner party.

Another stranger with an eagle feather spells trouble for Zorro when Perico, a recent arrival, sees a gypsy girl trying to pay for a purchase with several gold nuggets. Diego and Alejandro realize that news of a gold discovery will cause a rush of "gold fever" and their peaceful way of life will be threatened, so they try to suppress the news.

The magistrado's plans to aid the Eagle may suffer a setback when a new commandante arrives in the pueblo. Unlike the fake Ortega, Capitan Toledano is loyal to the King and beyond corruption, yet he must be eliminated if the Eagle's plot is to succeed. Toledano's jealousy over his pretty wife Raquel is the key to the magistrado's newest scheme.

Magistrado Galindo has smuggled a supply of weapons into the pueblo, intending to use them when the Eagle orders the overthrow of the government, but he has been unable to get a supply of gunpowder. The army has a large stockpile at the cuartel, and the magistrado decides to steal it for his use