Sancho Panza is an interesting and complex character whose attitude towards Don Quixote shifts and changes as this episodic novel progresses. A rustic peasant, Sancho at first considers Don Quixote, as most people who meet him do, to be a crazy and ridiculous old man. Sancho agrees to be his "squire" because he is poor, job opportunities are scarce in Spain, and working for Quixote promises to be easier and more of an adventure than his other alternatives. He is also promised an island, and is on the lookout for ways he can profit from the seeming insanity of his new employer.

He functions then, at first, as a hardheaded foil to Quixote—if Quixote has his head in the clouds and wants to live in a knightly romance and do idealistic deeds, Sancho is, in contrast, entirely practical, cynical, and down to earth. He feels he has found his sucker and will make the most of it. On the positive side, however, he often anxiously and earnestly gives Quixote good advice about avoiding trouble that Quixote ignores.

But—and this is what is interesting—as time goes on Sancho's character changes. He develops love and sympathy for his employer—and just as Quixote is becoming disillusioned and waking up from his dream of chivalry, it is the formerly cynical Sancho who urges him onward to pursue his dreams. In other words, over time, Sancho comes to need the dream of a better world that Don Quixote represents—as perhaps we all do.