The story of the masked rider in Old California opens as Don Diego de la Vega is returning to California from Spain, where he has been studying for several years. He passes the time at sea by fencing with the ship's captain, who tells him that the Pueblo de Los Angeles is under the rule of a cruel dictator, Capitan Monastario. This helps Diego understand the meaning behind a vague letter his father sent, urging him to return home.
Realizing that open opposition to Monastario and his troops would be fruitless, Diego decides to work in secrecy. He assumes the role of a foppish student more interested in books than in swordplay. To protect his true identity, Diego will become El Zorro - "The Fox". His servant Bernardo, a mute, also takes on a new role when he decides to pretend he is deaf, thus allowing him access to secrets he can share with Diego.
Not long after they arrive in Los Angeles, the travelers are provided with proof of the capitan's cruelty. Don Torres, a neighbor of Diego's, is thrown into jail for treason, and others are jailed for taxes they cannot pay. Diego notes the injustices in silence before traveling to his father's hacienda.
Diego's arrival first pleases then saddens his father, Don Alejandro. Diego decides not to endanger him with knowledge of his plans, and the older man's hurt at his son's seeming inaction provides even greater incentive for Diego to ride as Zorro. He takes Bernardo to a secret valley where a beautiful horse has been cared for while Diego was away. Tornado will remain hidden until Zorro is ready to appear.
Zorro's first act is to save the life of Don Torres, whom Monastario plans to release and then kill, claiming the prisoner had escaped. Sneaking into the fort, Zorro cuts the saddle straps on the soldiers' horses so they can't interfere. He then frees Torres, who escapes while Zorro battles the capitan. With Monastario locked in one of his own cells, Zorro rides off without fear of the lancers while their leader, the bumbling Sergeant Garcia, fearfully frees his capitan. Zorro leaves a warning nailed to the gate of the fort, promising Monastario that he will avenge any future injustices.
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