Spiced with action, adventure and romance, this masked vigilante thriller is set in 1821, when Don Diego de la Vega, a Spanish nobleman, fights against Spain in the Mexican War of Independence as Zorro, a mysterious avenger defending the Mexican peasants and commoners of Las Californias.
Don Rafael Montero, the cruel governor of the region, learns de la Vega's identity. Arresting de la Vega in his home, his wife Esperanza is accidentally killed by one of Montero's soldiers. Montero imprisons de la Vega, and takes his infant daughter, Elena, as his own before leaving for Spain.
Twenty years later, Montero returns from exile in Spain with Elena by his side. He is planning to turn California into an independent republic. His reappearance awakens a long-dormant de la Vega, who has spent two decades living in anonymity during his imprisonment. He escapes from prison, and as he plans his revenge on Montero, encounters a thief, Alejandro Murrieta, who along with his brother greatly admired Zorro as a child.
De la Vega takes Alejandro as his protégé. Inspired by the wish for revenge upon Captain Harrison Love, his brother's killer and Montero's right-hand man, Alejandro endures the tough training regimen. After Alejandro steals a black stallion resembling Toronado, Zorro's long-deceased horse, and leaves Zorro's mark at the scene, de la Vega scolds him claiming that Zorro was a servant of the people, not a thief or adventurer.
He challenges Alejandro to gain Montero's trust and pose as Don Alejandro del Castillo y García, a visiting nobleman, with de la Vega posing as his servant, Bernardo. Both attend a party at Montero's home, where Alejandro gains Elena's admiration and enough of Montero's trust to be invited to a secret meeting. There, Montero hints at a plan to retake California for the Dons by buying it from General Santa Anna, who needs money to fund his upcoming war with the United States.
Alejandro and the Dons are taken to a secret gold mine known as "El Dorado", where peasants and criminals are used for slave labor. The plan is to buy California from Santa Anna using gold mined from Santa Anna's own land. De la Vega uses this opportunity to become closer to Elena: still posing as Bernardo, he learns that Montero raised her claiming her mother died in childbirth.
De la Vega allows Alejandro to become his successor as Zorro, and sending him to steal the map leading to the gold mine: he duels Montero, Captain Love and their guards. As Alejandro escapes, Elena attempts to retrieve Montero's map. She fights him with a sword, but he uses his sword to strip off her clothing and seduces her, leading to a passionate kiss before he flees.
Terrified of Santa Anna's retribution, Montero decides to destroy the mine along with all its workers. De la Vega tells Alejandro to release the workers on his own while he reclaims Elena: he corners Montero and reveals his identity, but is captured.
As he is taken away, Elena, inspired by a chance encounter at the market with a woman who was her nanny, asks de la Vega the name of the flower that her mother hung about her crib: when it is de la Vega who tells Elena that it is the Romneya, she realizes he is her father. She releases de la Vega from his cell and they proceed to the mine, which Zorro has infiltrated.
De la Vega stops Montero from shooting Zorro and the two duel while Zorro is confronted by Captain Love. Alejandro avenges his brother, impaling Love with his own sword, and de la Vega kills Montero. Elena and Alejandro free the workers before the explosives go off, then attend to the mortally wounded de la Vega.
He makes peace with Alejandro before dying, passing the mantle of Zorro to him, and gives his blessings for Alejandro's and Elena's prospective marriage. They re-build the de la Vega home and have a son named Joaquin, honoring Alejandro's brother.