During a battle in the Aragonese town of Saragossa (Zaragoza) during the Napoleonic Wars, an officer retreats to the second floor of an inn. He finds a large book with drawings of two men hanging on a gallows and two women in a bed. An enemy officer tries to arrest him but ends up translating the book for him; the second officer recognizes its author as his own grandfather, who was a captain in the Walloon Guard.

The ancestor, Alfonso van Worden (Zbigniew Cybulski), appears with two servants, seeking the shortest route through the Sierra Morena Mountains. The two men warn him against taking his chosen route because it leads through haunted territory. At an apparently deserted inn, the Venta Quemada, he is invited to dine with two Moorish princesses, Emina (Iga Cembrzyńska) and Zibelda (Joanna Jędryka) in a secret inner room. They inform the captain that they are his cousins and, as the last of the Gomelez line, he must marry them both to provide heirs. However, he must convert to Islam. He jokingly calls them ghosts (despite having told his servants with great bravado that ghosts do not exist). Then they seduce him and give him a skull goblet to drink.

He wakes and finds himself back in the desolate countryside, lying next to a heap of skulls under a gallows. He meets a hermit priest who is trying to cure a possessed man; the latter tells his story, which also involves two sisters and a different kind of forbidden love. Alfonso sleeps in the hermitage’s chapel, hearing strange voices at night.

When he wakes and rides off, he is captured by the Spanish Inquisition. But he is rescued by the two princesses, aided by the gang of the Zoto brothers (two of whom had appeared dead on the ground near the gallows). Back in the inner room, the two princesses become amorous with Alfonso but they are interrupted by Sheikh Gomelez, who forces the captain to drink the skull goblet at sword point.

Again Alfonso awakens at the gallows, but this time a cabalist is lying next to him. As they ride to the Cabalist’s castle, they are joined by a skeptical mathematician, who remarks, “The human mind is ready to accept anything, if it is used knowingly.” Thus ends part 1 of the film.

Part 2 is primarily filled with the nested tales told by the leader of a band of gypsies who visit the castle. Frame story or tale-within-a-tale-within-a-tale only begins to describe the complexity, because some of the inner tales intertwine, so that later tales shed new light on earlier experiences recounted by other characters. Multiple viewings of the film are recommended in order to comprehend the plot, as well as identify the appearance of certain characters before they are “introduced” by the gypsy raconteur to tell their own tales.

Finally, Alfonso is told to return to the Venta Quemada, where he meets the two princesses. They bid him farewell and the Sheikh gives him the large book so that he can write the end of his own story. The Sheikh explains that the whole adventure was a “game” designed to test Alfonso’s character.

Alfonso wakes under the gallows again, but his two servants are nearby – it is as if they are about to begin the journey that he has just “dreamed”. At the small inn in Saragossa, he writes in the large book until someone tells him that the two princesses are waiting for him. He flings the book aside and it lands on the table where his descendant’s enemy found it at the beginning of the film.