A knight-errant must have a squire so he convinces his neighbor, Sancho Panza, to accompany him by promising to conquer an island and make him the governor. After convincing Panza of that, they head out and come upon thirty or forty windmills which Don thinks are the Giants. Sancho is unable to convince him otherwise and Don attacks them, experiencing a bad fall. He blames Friston for turning them into windmills. Continuing along the highway, Don Quixote frightens a couple of priests and then loses part of his ear in a fight when he attempts to rescue a lady from a stagecoach. Don tells Sancho that he has a special recipe for magic balsam that will instantly mend broken bones and other injuries, and Sancho believes him. They pass a group of goatherds who have no idea what Don Quixote talks to them about and they also attend a funeral of a goat herder who died of unrequited love.

             Later, Sancho and Don are resting by a brook and nearby is a herd of Galacian ponies. Rocinante tries to mate with them and the Yanguesans' see their horses being attacked and beat the horse to make him stop. The knight and his squire see this and immediately attack. They are beaten badly and they limp off to where they finally come across an Inn (castle). When daybreak comes again, Don makes up some magic balsam. Taking a dose, he vomits, falls asleep, and wakes up feeling better. Sancho takes a larger dose and almost dies. They finally leave to continue their journey and Don comes across a herd of sheep which he thinks are warring armies. He charges the sheep, killing seven of them before he is stoned and hurt badly by the shepherds. Again Friston is blamed for turning the army into sheep. That night a group of robed figures approach with torches and Don knocks one of them off of his mule. It turns out to be a priest with a funeral procession. The priest takes off and leaves the corpse on the mule with provisions which Sancho eagerly takes.