An example of this is when Don Quixote and Sancho encounter two monks and a carriage carrying a lady and her attendants. Don Quixote thinks that the two monks are enchanters who have captured a princess and attacks them, ignoring Sancho's and the monks' protests. He knocks one monk off his mule.

Sancho, believing he is rightly taking spoils from Don Quixote's battle, begins to rob the monk of his clothes. The monks' servants beat Sancho, and the two monks ride off. This shows how much Sancho gets caught up in Don Quixote's madness, since in reality there was no “spoils” to be won from the fallen monk. On the other hand, Sancho often chastises Don Quixote for his reliance on fantasy. Sancho effectively acts as Don Quixote's foil. Sancho also has a quick sense of humor to counter the solemn nature of Don Quixote. Sancho also only deceives and lies only when it suits him, and tells the truth and sticks to reality when the odds are against him. An example of this is when Sancho and Don Quixote leave an inn, the innkeeper demands that he pay for his stay.

Surprised that he has stayed in an inn and not a castle, Don Quixote refuses to pay on the grounds that knights-errant never pay for lodging. He rides off, slinging insults at the innkeeper. Several rogues at the inn capture Sancho, who also refuses to pay. Sancho finally gets away and feels proud for not having paid. It is in this way that Sancho twists reality to fit his own needs.

Living in both Don Quixote's world and the world of his contemporaries, Sancho is able to create his own niche between them. He embodies the good and the bad aspects of both the current era and the bygone days of chivalry.

But it turns out that the innkeeper has stolen Sancho's saddlebags anyway. Through Sancho, Cervantes critiques the ill-conceived equation of class and worth. Though Sancho acts ignorant and foolish, he nonetheless proves himself a just ruler, better than the aristocratic Duke. By the time Sancho returns home for the last time, he has gained confidence in himself and in his ability to solve problems.

One character trait of Don Quixote is that he frequently muddles fantasy with reality. While on the trail with his faithful squire, Sancho, Don Quixote mistakes a field of windmills for massive giants. Caught up in his own reality, and also dragging Sancho with him, Don Quixote attacks the windmills on his nag, who he believes to be a great horse of chivalry. As the windmills are not actually giants, the blade knocks Don Quixote right off his horse. Afterwards, Don Quixote reasons that a wizard must have transformed the giants into windmills at the last second, in order to fool him.

This is a reoccurring scene, when Don Quixote justifies his fantasies with even more ridiculous implications. Don Quixote is also extremely intelligent. He cogently and concisely talks about literature, soldiering, and government, among other topics. He is very well learned in the ways of poetry and books pertaining to his favorite subject, knights and chivalry. Don Quixote also has a habit of correcting errors in the particular ways in which some people speak. In one instance he interrupted and man so many times that he refused to finish the story that he was reciting. At other times he would correct Sancho himself, who usually claimed stories were told in “such a way” that words and events were repeated for clarity.

The intelligent nature of Don Quixote makes him out to appear sane at times. Don Quixote is a coy character, and brings up the idea that he really does know what is going on around him and that he merely chooses to ignore the world and the consequences of his disastrous actions. At a few points it is hinted at that Don Quixote may know more than he admits. Therefore, when Don Quixote suddenly declares himself sane at the end of the novel, it is under suspicion that he has at least partly feigned this madness.

On the other hand, we can read Don Quixote's character as a warning that even the most intelligent and otherwise practically minded person can fall victim to his own foolishness. Don Quixote's adventures also serve as a warning that an outmoded set of values can both produce positive and negative outcomes. Don Quixote followed his morals so fiercely that he refused to let the environment surrounding him stand in the way of his own reality, and not the actual reality.

Don Quixote symbolizes the irrational imagination shared by the universal human spirit. Don Quixote cannot, for instance, identify with the priest's rational perspective and objectives, and Don Quixote's belief in enchantment appears ridiculous to the priest. Toward the end of the Second Part, however, there seems to be a compromise between two incompatible systems of morality, allowing Don Quixote's imaginary world and the commonplace world to infiltrate each other.

Don Quixote also symbolizes great honor in his chivalric endeavors. Don Quixote's obsession with his honor leads him to do battle foolishly with those who never mean him offense. Dorothea's concern for her personal honor leads her to pursue her lover with satisfactory results. In these examples, we see that characters who are primarily concerned with socially prescribed codes of honor such as Don Quixote meet with difficulty, while those who set out merely to protect their own personal honor, such as Dorothea, meet with success.

Don Quixote also revitalizes the concept of romantic love. Though many people in Don Quixote's world seem to have given up on romantic love, Don Quixote and a few other characters hold this ideal to the fullest. Camacho's wedding is a situation in which romantic love rises above all else. Even in the case of Sancho and his wife, romantic love prevails as a significant part of commitment, which we see in Teresa's desire to honor her husband at court. Don Quixote pushes romantic love to the extreme as he idolizes a woman he has never even seen.