In the early 1700's, dreaded bandit Fra Diavolo returns to his camp in Northern Italy to tell his followers about his encounter with stodgy old Lord Rocberg and his lovely, silly young wife, Lady Pamela.  Disguised as the Marquis de San Marco, Diavolo rode with them in their carriage and charmed Pamela into revealing the hiding place of her jewels.

Diavolo now sends his thieves to rob the Rocbergs while, elsewhere, Stanlio and Ollio are also robbed of their life savings.  Stanlio suggests that they become bandits too, but after they unsuccessfully try to rob a woodchopper, they run afoul of Diavolo, whom Ollio is impersonating.  Diavolo is about to make Stanlio hang Ollio when he receives word that while his bandits did steal the jewels, they did not get the 500,000 francs hidden by Rocberg.

Because he needs unknown assistants, Diavolo assumes his disguise as the marquis and takes Stanlio and Ollio into town with him, presenting them as his servants while he attempts to find the francs.  Once at the inn where the Rocbergs are staying, Diavolo romances Pamela, while the boys, trying to turn in Diavolo for a reward, unwittingly capture Lord Rocberg, who is disguised as the marquis in an attempt to win back his wife.  Diavolo terrorizes the boys into behaving, but when Stanlio accidentally drinks a sleeping potion meant for Rocberg, Diavolo's attempt to find the francs is foiled again.

Diavolo does succeed in stealing Pamela's medallion, and the loss is blamed on young Captain Lorenzo.  Lorenzo is the sweetheart of Zerlina, who is to marry a boring merchant named Francesco on orders of her father, Matteo the innkeeper.  Although the wedding is scheduled to take place that day, Lorenzo swears he will prove his innocence before Zerlina is forced to marry Francesco.

Meanhile, Diavolo continues romancing Pamela, and eventually finds out that Rocberg has hidden his fortune in her petticoat.  Just as Diavolo steals the petticoat, Lorenzo finds out his true identity from Stanlio, who is "spiffed" after a visit to Matteo's wine cellar.  Lorenzo has his soldiers surround the inn and he then duels with Diavolo, whom he bests with a little inadvertent help from Stanlio.  The good-natured Diavolo returns the jewels and, when Rocberg will not pay the reward for them to Lorenzo, Diavolo gives Lorenzo the money that he stole from Pamela's petticoat.

While the jealous husband rushes upstairs to confront his wife, Lorenzo gives the money to Matteo, thereby saving him from having to sell the inn.  Diavolo, Stanlio and Ollio are then taken away to be shot by a firing squad, but when Stanlio takes out his red handkerchief with which to blindfold himself, a bull is enraged by the color and breaks up the ranks when he charges.  Diavolo escapes on his horse, and Stanlio and Ollio wind up riding the bull to freedom.