Miguel de Cervantes, aging and an utter failure in his varied careers as playwright, poet and tax collector, sits in a Seville dungeon with his manservant, awaiting trial by the Spanish Inquisition for an offense against the Church. The other prisoners set up a mock trial: if Cervantes is found guilty, he will hand over all his possessions. Cervantes agrees to do so, and offers his defense in the form of a play. Producing a makeup kit, he transforms himself into an old man who calls himself Don Quixote de La Mancha.
Quixote and his “squire,” Sancho Panza, set out to find adventures in a campaign to restore the age of chivalry, to battle evil, and to right all wrongs (“I, Don Quixote”). In their first encounter, Don Quixote spots a windmill and mistakes it for a four-armed giant. Losing the battle, Don Quixote blames the mysterious workings of his enemy, The Dark Enchanter, and decides he must properly be dubbed a knight.
At a roadside inn, which Quixote insists is a castle, several rough muleteers harass Aldonza, the inn’s serving girl and part-time prostitute. Fending them off sarcastically (“It’s All The Same”), she eventually deigns to accept their leader, Pedro, who pays in advance. Quixote sees Aldonza, and believes her to be the Lady Dulcinea, to whom he has sworn eternal loyalty (“Dulcinea”). Aldonza, accustomed to cruelty, is confused and angered by Quixote’s refusal to see her as she really is.
Meanwhile, Don Quixote’s niece, Antonia, seeks advice from the local priest, who realises Antonia and her housekeeper are more concerned with appearances than with the old man’s welfare (“I’m Only Thinking of Him”). Antonia’s fiancé, the cynical and self-centered Dr. Carrasco, sets out to end the embarrassment by bringing Don Quixote back home (“I’m Only Thinking of Him” Reprise).
Back at the inn, Sancho courts Aldonza on Don Quixote’s behalf, but she spurns Quixote’s advances. Aldonza asks Sancho why he follows Quixote, and he explains, “I Really Like Him.” Alone, Aldonza ponders the old man’s behavior (“What Do You Want of Me?”). In the courtyard, the muleteers once again taunt her with a suggestive song (“Little Bird, Little Bird”) and Pedro makes arrangements with Aldonza for an assignation later.
The priest and Dr. Carrasco arrive, but cannot reason with Don Quixote. A barber enters, wearing his shaving basin on his head to ward off the sun’s heat (“The Barber’s Song”). Quixote immediately snatches the basin from the barber, believing it to be the miraculous “Golden Helmet of Mambrino,” which will make him invulnerable. The priest, impressed, wonders whether the old man really needs curing (“To Each His Dulcinea”).
Quixote asks the Innkeeper to dub him knight. The innkeeper agrees, only if Quixote stands vigil over his armour all night. Aldonza, on her way to meet Pedro, encounters Quixote in the courtyard and questions him on his seemingly irrational ways. Quixote responds with his credo (“The Impossible Dream”).
Pedro enters, furious at being kept waiting, and slaps Aldonza. Enraged, Don Quixote fights Pedro and the other muleteers (“The Combat”). With luck and determination – and the help of Aldonza and Sancho – Quixote prevails, knocking the muleteers unconscious. The noise awakens the Innkeeper, who kindly tells Quixote he must leave. Quixote apologises but reminds the Innkeeper of his promise to dub him knight. The Innkeeper does so (“Knight of the Woeful Countenance”).
Quixote announces he must help the muleteers; the laws of chivalry demand that he nurse a fallen enemy. Aldonza, whom Quixote still calls Dulcinea, is shocked, but she agrees to help them. For her efforts, she is beaten and raped by the muleteers, (“The Abduction”). In his room, Quixote celebrates his new title and recent victory, completely unaware of Aldonza’s suffering (“The Impossible Dream” Reprise).
Quixote and Sancho return to their travels (“I, Don Quixote” Reprise). They encounter a band of gypsies (“Moorish Dance”) who steal Quixote’s horse and Sancho’s donkey. The two men are forced to return to the inn, where the Innkeeper begrudgingly accepts them. Aldonza appears, severely bruised. Quixote swears to avenge her, but she angrily rejects him, begging him to leave her alone and bitterly flinging her pitiful history in his face (“Aldonza”).
Don Quixote’s mortal enemy, the Enchanter, appears in the form of the “Knight of the Mirrors.” He attacks and taunts Quixote, forcing him to see himself objectively, as a fool and a madman. Don Quixote collapses, weeping. The Knight of the Mirrors removes his own helmet – he is really Dr. Carrasco, returned with his latest plan to cure Quixote.
Cervantes announces that the story is finished, at least as far as he has written it, but the prisoners are dissatisfied with the ending. They prepare to burn his manuscript when he asks for the chance to present one last scene.
At home again, the old man who once called himself Don Quixote is dying. Antonia, Carrasco, Sancho, the housekeeper, and the priest all wait by his bedside. Sancho tries to cheer him up (“A Little Gossip”). The old man claims that he is now sane, remembering his knightly career only as a vague dream. Acknowledging that he is now dying, he asks the priest to help him make out his will. As he begins to dictate, Aldonza forces her way in. She has come to visit Quixote because she can no longer bear to be anyone but Dulcinea. When he does not recognise her, she sings to him (“Dulcinea” Reprise) and reminds him of his noble quest (“The Impossible Dream” Reprise). Suddenly, he remembers everything and rises from his bed, calling for his armor and sword so that he may set out again. (“I, Don Quixote” 2nd Reprise) But it is too late; in mid-song, he cries out and falls dead. The priest blesses the body (“The Psalm”). But Aldonza believes Don Quixote will live on: “A man died. He seemed a good man, but I did not know him… Don Quixote is not dead. Believe, Sancho… believe.” When Sancho calls her by name, she replies, “My name is Dulcinea.”
The Inquisition enters to take Cervantes to his trial, and the prisoners, finding him not guilty, return his manuscript, his unfinished novel, Don Quixote de la Mancha. As Cervantes and his servant mount the staircase to go to their impending trial, the prisoners, led by the woman who played Dulcinea, sing “The Impossible Dream.”