Don Alejandro tells Diego he's received a letter from a friend in the capital telling him that the new commandante, Capitan Juan Ortega, has the reputation of being an honest and fair man. When Ortega arrives, he doesn't act that way. He treats Sergeant Garcia with contempt and is openly arrogant toward the civilians. The reason for this is revealed when Ortega meets the magistrado and informs him that the real commandante has been ambushed and murdered, on orders of the Eagle.

The fake Ortega and the magistrado announce they have captured Zorro, and a cart holding a masked man is dragged into the town square. A public unmasking will be held at noon, and Diego fears that an innocent man will be charged with Zorro's "crimes". He also realizes it may all be a trap, so when he dons his costume and rides into the square to free the prisoner, he watches carefully for soldiers.

The plans of the fake commandante and the magistrado go awry when Ortega spots Diego talking to Rosarita Cortez, a childhood friend who has recently returned from the capital. Ortega fears she will recognize him from her journey, for it was during that trip that he murdered the real Ortega and assumed his identity. Bernardo overhears the two villains planning her death, and notifies Diego.

With the death of the magistrado, the Eagle takes a more active role in his conspiracy to rule southern California. He sends two of his men, Quintana and Fuentes, to Los Angeles with a load of gunpowder for the weapons previously smuggled into the pueblo. The two men earn the wrath of the Eagle for suggesting that Zorro may upset the plan, and they fearfully head off on their mission.

The evil work of the Eagle takes a new turn when the commandante's wife, Raquel, visits Quintana and Fuentes and shows them an eagle feather, proving that she belongs to the conspiracy. She informs them the Eagle is furious over the loss of the gunpowder and that they must recover it if they hope to stay alive.

Sergeant Garcia and the other soldiers are amazed one morning when every musket seems to misfire. When they check their gunpowder, they realize it has been replaced with charcoal. A search of the cuartel reveals that all of the gunpowder has been stolen, leaving the post defenseless.

Raquel's ambitious plans for her husband appear to end when she receives a letter from him. She had been promised by the Eagle that he would be made governor of California, but her husband wants her to join him in San Diego, for he plans to sail back to Spain. Realizing the Eagle will not let her go, she tries to sneak out of the pueblo, only to be caught by Quintana.

Don Alejandro convinces all of the landowners to sign a document pledging their loyalty to the government, for he has become worried by the growing signs of possible civil unrest. He leaves a copy in the hacienda and takes the original to the capitol, intending to present it to the governor. Alejandro has barely left when Diego receives some unwelcome news. A new administrator has arrived in the pueblo and announced his decision to use the de la Vega hacienda as his headquarters.

An emissary from a foreign power has arrived in the pueblo to discuss plans to help the Eagle in his rebellion. George Brighton, the agent, warns Varga that there must not be any open resistance. His government wants an obedient colony, not one torn apart by internal battles. Varga promises to deliver control as planned, but he continues to worry about Don Alejandro and the other landowners who have pledged their allegiance to the King.

Diego overhears Varga telling his aide that the de la Vega hacienda is so comfortable he intends to make it his permanent headquarters. Knowing his father will soon return and would fight to the death to protect his home, Diego decides to try a risky plan to drive the Eagle out.

Another stranger arrives in the pueblo and travels to the de la Vega hacienda, intending to meet with the Eagle. Diego recognizes the visitor as Count Kolinko, an ambassador from an Eastern European country that has long been interested in controlling California. Since the Eagle has left for the pueblo, Diego manages to convince Kolinko that he is also part of the conspiracy. He almost succeeds in gaining necessary details of the plot.

Bernardo, who is keeping watch over Varga, is disturbed to see Garcia leading a patrol of lancers out of the cuartel. Even more disturbing is the sight of several strangers who drift into the Eagle's headquarters. When he tries to look inside, the gates are locked, so he rushes to warn Diego of the threat.