Halfway toward dawn, Don Quixote and Sancho descend the hill and enter the silent, sleeping village. The knight heads for Dulcinea's palace, but the lofty building turns out to be a church. Sancho offers no help for, he says; it is too dark for him to recognize their whereabouts. "You that have seen it a thousand times should locate the place," he tells the Don, but his master says that he admires the Lady only by hearsay and never saw where she lives. "To be plain with you," Sancho confesses, "I saw her but by hearsay, too, and the answer [to the letter] I brought you was by hearsay as well as the rest, and I know the Lady Dulcinea no more than the man in the moon." Before Don Quixote can digest this astounding news, a ploughman suddenly appears but is unable to give them directions.
Sancho now offers a welcome suggestion: that his master remain in a nearby wood while he seeks Dulcinea. He will tell her that Don Quixote attends her and will then report back to his master what her instructions are.
Leaving his master meditating in the wood, Sancho rides out of sight and then lies down under a tree to think. He decides to tell Don Quixote that Dulcinea has been horribly enchanted into a rustic peasant lass. As he remounts Dapple, he sees three country wenches riding towards him, each on a she-ass. Hastening to Don Quixote, he cries, "If you will clap spurs to Rosinante you will yourself meet Lady Dulcinea with a brace of her damsels in the open field." Bewildered, Don Quixote kneels beside his squire, who has thrown himself in front of one of the girls recommending her ladyship to the Knight of the Woeful Countenance, her willing slave. Thinking that they are mocked, the wenches attempt to ride off, but one of them is thrown when her donkey rears. The knight hastens to help his Dulcinea remount, but she avoids him by vaulting into the saddle and riding swiftly away. Stunned, disappointed, and confused, the poor knight begs Sancho to describe the rich trappings of the princesses' palfreys, the beautiful visage of his Lady, and the ornate clothing she wears that the evil enchantment has prevented him from enjoying. Sancho relates the loveliness of the ladies, their apparel, their perfume, their fine-bred mounts, while Don Quixote can only wonder at the vulgar wenches he had beheld.
This is a low point in Don Quixote's career, for his most faithful follower, Sancho, has joined the mockers by enacting a cruel comedy at his master's expense, grotesquely exchanging roles by declaring a vision contrary to the knight's observations. Cervantes declares, as well, that his hero's madness in this scene "outstrips all imaginable credulity," for Don Quixote, believing what Sancho tells him, is forced to accept the cruel reality that the peasant girl of the garlic breath is his Dulcinea. Shocking as is this scene to the knight, we may also imagine that the shy lover Alonso Quixano, that tender, distracted soul hoping against hope for a chance to confront his Aldonza for the first time, is even more deeply wounded, more confused and doubtful than his knightly other self. On the other hand, those who maintain that Don Quixote is an actor rather than a madman may discover that the hero is well equipped to digest this turn of events and go along with the act that Sancho has set up.
This chapter investigates the nature of Sancho a little further. The squire considers his master foolish and easy to fool, "so very mad as to mistake black for white, white for black." But, says he, "I am the greatest cod's-head of the two, to serve and follow him as I do." Without really believing in his master's fancies, yet by following along, he does believe. Sancho, who sees black for black, who recognizes windmills, not giants, and sheep, not armies, slowly surrenders himself to quixotic faith, tenaciously clinging to a fantastic hope that he will govern an island. Furthermore, Sancho himself is later to be deceived about this very deception, as his patron the duchess convinces him that Dulcinea is truly enchanted. Miguel de Unamuno points to this two-faceted quality as "the mystery of faith sanchopanchesque, which, without believing, believes."