It is the late sixteenth century. Miguel de Cervantes, an author and part-time actor, has been thrown into a dungeon with his manservant for openly lampooning the Spanish Inquisition. In the dungeon, he is subjected to a mock trial, and the other prisoners confiscate many of Cervantes's belongings, but he seeks to save a mysterious manuscript. Having a trunkful of costumes, props, and makeup at his disposal, he suggests that he be allowed to present an entertainment, with the other prisoners also playing roles. And now the story of Don Quixote begins:Alonso Quijana - not Quijano as in the novel - (Peter OToole), is a country squire somewhere in La Mancha. He is no longer young. He enjoys reading almost incessantly. He eventually goes mad from reading too many books of chivalry (which were in vogue then) and decides to become a knight-errant himself - Don Quixote de la Mancha.Don Quixote, on horseback and in armor, with Sancho Panza (James Coco) riding a donkey at his side, sets out early one morning to find adventures. They proceed along a road on the plains of La Mancha, discoursing about the rules and customs of knight errantry, until, in the distance, a windmill is seen. Don Quixote, believing it is a ferocious four-armed giant, attacks it.Don Quixote first pierces one vane with the lance, then attacks with his sword. He is scooped up by the sails of the windmill, and "rides" it until he loses his balance and clatters to the ground.Don Quixote explains that, at the last minute, an evil enchanter who has it in for him has changed the giant into a windmill. As Sancho tends to his bruises, Don Quixote says in all seriousness: "A knight must not complain of his wounds, though his bowels be dropping out".Upon higher ground in the distance, a sprawling establishment is seen, and Don Quixote decides to proceed to yonder castle. Sancho tells him it's really an inn, but no matter . . .In the courtyard of the inn, a group of mule team drivers have stopped and want food and drink. The serving wench is curvaceous Aldonza (Sophia Loren), a hard working servant with a habit of selling herself for money during the night. As she serves, she is accosted by many men, and she pushes them off. Pedro (Brian Blessed) is the leader, and feels entitled to have first dibs on Aldonza, but she rejects him.Pedro: My mules are not so stubborn. Aldonza: Fine! Make love to your mules!While this is going on, a horn blast is heard. It is Don Quixote, arriving, asking for the Lord of the Castle, puzzled that dwarfs have not been sent out to meet him, . The innkeeper (Harry Andrews) welcomes him and soon decides to humor him in his delusions. He explains that the dwarfs are busy with other duties.Don Quixote instructs the innkeeper thus: "See that your grooms care for my fleet-footed Rocinante, a horse of courage, sobriety, and chastity, the flower and glory of horseflesh".When the innkeeper's wife expresses concern that he might have no money, the innkeeper replies: "When has a poor man ever found time to run mad? Of course he has money, he's a gentleman," and Don Quixote is shown to an upstairs room.As Don Quixote enters the busy main patio, he addresses the muleteers and others present as Lords and Ladies, causing merriment, but he takes no notice. He does notice Aldonza, and his brain is immediately in a new track, addressing her as his lady Dulcinea, and approaches her, explaining to her who she really is in a song, "Dulcinea".Aldonza is puzzled, busy and not in humor for such craziness, although she appreciates being treated with respect. She assumes he wants what all the others want from her. The muleteers all keep guffawing and laughing at him.In the meantime, at the home of Alonso Quijana, his niece Antonia (Julie Gregg) and his housekeeper (Rosalie Crutchley) ask advice from the parish priest (Ian Richardson) and physician Sansón Carrasco (John Castle), who is Antonia's suitor. The women voice their worries in song: I'm Only Thinking of Him, quite concerned with the embarrassment triggered by his antics.Carrasco's views dominate: "A man who chooses to be mad can also choose to be sane." He concocts a plot to convince Don Quixote to return home, and then they will see what to do next.Back at the inn, Sancho brings a letter from Don Quixote to Aldonza, asking for a token that he can wear in battle, something like a silk scarf. She is intrigued but scoffs, giving Sancho a dirty floor rag. Eventually, Don Quixote gets the rag, kisses it and holds it as if it were a beautiful pristine silken scarf.An itinerant barber (Gino Conforti) shows up at the gate and enters, wearing a bright brass barber's shaving basin as a hat. Don Quixote sees the bright brass and, very agitated, demands it be given to him, claiming it is the fabled Golden Helmet of Mambrino, a magical item that protects the knight who wears it. The barber recognizes the situation.As the basin is worth only half a crown, the terrified barber acquiesces at swordpoint, and all the mule drivers enjoy the joke.As soon as the barber departs, Don Quixote kneels in front of the innkeeper and asks for a boon, that he should the very next morning dub him knight, as he has agreed to fight a real knight, but has no right to do so until he is dubbed. He will stay up all night, as required by the rules, watching over his armor. He must fast, so he declines dinner.Some time after dusk, a group in black mourning costumes, bringing a bier, the principals masked, show up at the gate and ask for Don Quixote de la Mancha. After he identifies himself, a tearful lady veiled in black asks Don Quixote to grant her a boon. He agrees, of course, and she says that their relative on the bier has been turned into stone by the spell of an evil enchanter. The spell can be broken if Don Quixote will agree to meet the enchanter in battle. The enchanter will presumably wait for Don Quixote the next day, on the road, near Don Quixote's village.The stone man on the bier was a man hired to participate in a hoax, the tearful veiled lady was none other than Antonia Quijana, and the other two were Sansón Carrasco and the housekeeper. Also there was the local village priest, who reluctantly joined the group, although he sympathizes more with Quixote.After the night watch starts, Aldonza comes to talk to Don Quixote. Exasperated, she asks him why he does the things he does. He says that all that matters is that he follow the Quest, and sings the musical's signature song "The Impossible Dream": "To dream, the impossible dream / To right, the unrightable wrong / To love, pure and chaste from afar / To try, when your arms are too weary / To reach the unreachable star. / This is my quest, to follow that star.../ To fight for the right / Without question or pause / To be willing to march / Into Hell for a Heavenly cause!". etc. Aldonza is deeply moved by the song and begins to sympathize with the knight. Pedro the chief muleteer comes to Aldonza, angry that she is late for their lovemaking. He slaps her, and a brawl ensues, Don Quixote and Sancho and Aldonza on one side, Pedro and the muleteers on the other, but only Pedro fights for real, the others are in it for making fun of Don Quixote, so they clown around somewhat and at the end of it, the muleteers are all unconscious on the ground.The innkeeper thinks things are getting out of control, so he insists on knighting Don Quixote right away, and politely orders him to bed and to leave the first thing the next morning.The muleteers decide to take revenge on Aldonza, and when, by the laws of chivalry, she "ministers to their wounds", they savagely beat her and carry her off with them in order to rape her.Don Quixote and Sancho leave the inn, hopeful and joyful, renewing their discussions of knight errantry, and Don Quixote corrects Sancho in his speech, saying he uses way too many proverbs.They come upon the furious Aldonza on the roadside. She is bitter, and mocks Don Quixote's attempts to comfort her.Just then, a few paces away, we see a knight in full armor, flanked by a dozen squires bearing shields decorated with mirrors. They approach and surround Don Quixote, taunt him with his failures, dazzle them shining the sun into his eyes, and Don Quixote, still reeling and shocked by Aldonza's rejections, collapses.We next see Don Quixote in bed, surrounded by the Priest, Carrasco, Antonia, and the housekeeper. His experience with the Knight of the Mirrors has sent him into a coma.First Sancho, then Aldonza, come to see him, and push their way in to talk to him, although Carrasco wants to keep them out, but the Priest says there's no point. Upon hearing Sancho's voice, Don Quixote opens his eyes and starts talking very softly. He says he is no longer Don Quixote, but Alonso Quijana: "Soft and fair, my friends; in last year's nests there are no birds this year." He tells the priest to write down his last will. He has only a vague memory of being Don Quixote, but Aldonza, who has found she cannot live without being Dulcinea, begs him to remember. He eventually does, and rises from his bed ready to search for adventures once again. However, his strength fails him, and he dies in Sancho and Aldonza's arms. But to Aldonza, Don Quixote can never die, and when Sancho calls her by her real name, she gently asks him to call her Dulcinea.The prisoners have been deeply moved by Cervantes's "entertainment" and return his manuscript to him. It is the still-unfinished novel, "Don Quixote de la Mancha". As Cervantes and his manservant are escorted by the Inquisition to their trial, the prsoners sing a final reprise of "The Impossible Dream".