Estevan again becomes a problem for Diego when he decides to earn some easy money. Los Angeles is preparing for its annual horse race and Estevan would like to win the prize money, but his horse seems unlikely to win. His luck changes when he comes across Zorro's horse, Tornado, grazing in a hidden field, and he captures the animal.

Humiliated by Zorro, Basilio gets his revenge by arresting Sergeant Garcia and hoisting him in the air in the public square outside the cuartel. A large sign dares Zorro to rescue Garcia, but Diego knows Basilio will have hidden lancers throughout the area. When night arrives, so does Zorro, using Bernardo to help create a diversion that draws the soldiers out of town.

Capitan Arrellanos refuses to help the Rebatos any longer in their attempts to kill the governor. Instead, he chooses another plan designed to make him the head of the government. He asks the governor's daughter to declare her father too ill to continue in office. Furious at this request, Leonar refuses to cooperate. She then tells her father of the aide's plot.

Mexican bandits fleeing north to California under the leadership of clever and charismatic El Cuchillo ride into Los Angeles and decide to steal a shipment of silver. Don Diego quickly becomes suspicious of them and saves the day as Zorro, but the sword fight between El Zorro and El Cuchillo has to be aborted when Sgt. Garcia and his lancers arrive. Nevertheless, Zorro leaves Cuchillo with a "Z" slashed into his coat and a warning to get out of California.