The majordomo gives an account of the enemy attack and Sancho's departure from his government, which amuses the duke and duchess. Meanwhile, the duke makes the arrangements for the challenge between Don Quixote and Tosilos. He insists that the heads of lances be removed to prevent death or injury. Don Quixote agrees.
People arrive to witness the spectacle, for they have never seen such a thing (as the practice had been outlawed a long time ago). The master of ceremonies does a double check to make sure everything is in order. The terms are agreed upon. If Don Quixote is victorious, the young man must marry the daughter of Dona Rodriguez. If Tosilos is victorious, he is released from the marriage promise.
The battle begins, and Don Quixote charges. However, Tosilos--having demanded to see the maiden who claimed he had breached on his promise--falls in love with her. He calls out to the marshal that he is troubled by his conscience, and he will marry the lady.
Don Quixote comes to a halt. The duke is amazed and angry at the development. Tosilos goes up to Dona Rodriguez and tells her he will marry her daughter.
However, when Tosilos removes his helmet, the duenna and daughter cry out that they have been tricked. This is not the young man that promised to marry the daughter. Don Quixote tells them that the young man's features were altered by the enchanters. However, he advises the daughter to marry the young man.
The duke laughs and proposes that the marriage be delayed, and the young man kept in confinement for a fortnight to see if his features shall change back.
The daughter, though, is grateful for the offer and wishes to accept.
Tosilos is still locked up, but he is resolved to marry the damsel. The duenna and her daughter are content. The people are disappointed that they didn't get to see the combatants fight.