Diego, in Zorro costume, dances with Florinda at the ball. Velasquez, the tax collector, reports the theft to Esteban, pointing to Diego as Zorro. A duel ensues with Esteban, and Zorro escapes by again jumping from a high wall, but this time injuring his foot and hobbling away. Later that night, a drunk Florinda attempts to seduce Diego at his hacienda, but Esteban arrives to speak about the evening's events. He suspects that Diego might be Zorro, but Diego convinces him that his foot is uninjured. A reign of terror begins, including torture and increased taxation. Diego is frustrated because, being injured, he cannot fight Esteban's tyranny. Fate intervenes when Diego's gay, foppish, and British-educated twin brother Ramón de la Vega, a Royal Navy officer, having adopted the name "Bunny Wigglesworth", comes home for a visit. Diego brings him up to date, and Bunny assumes the guise of Zorro, using a whip instead of a sword, while wearing flamboyant Zorro attire in a variety of coordinated colors. The colorful Zorro always eludes capture. Esteban hatches a plan to lure Zorro to the alcalde's residence with another ball to show off Florinda's expensive new necklace. Seeing through the plan, Diego arrives dressed as Zorro. So do the rest of the Dons and male party guests, saying that a message from Esteban instructed them all to dress that way. Adding to the confusion, Bunny appears in drag, masquerading as "Margarita" Wigglesworth, Diego's cousin from Santa Barbara. Esteban is smitten upon meeting her. Bunny spills a drink on Florinda, and in the resulting chaos attempts to clean her dress, makes off with the necklace. As Bunny leaves to return to the Royal Navy, he tells Diego that Charlotte Taylor-Wilson has confessed her love for Zorro. At the plaza, Diego as Zorro and Charlotte meet again, falling into each other's arms, but they are observed and Esteban is informed. As a ruse to lure Zorro, he has Charlotte arrested, and she is sentenced to be executed. Don Diego as Zorro surrenders to Esteban to save her, and he is sentenced to death. Seconds before the firing squad opens fire, Bunny, this time wearing a bright metallic gold costume, announces the return of Zorro.