Sinclair heads to boarding school at a place known to the reader only as St.3/43/4. At this time, he is aware of the loss of his innocence, but is deeply ambivalent about it. He is glad to be away from home, but upset that he has been unable to find joy under the protective watch of his parents. He misses Demian, but also resents him for having contributed to his tormenting intellectual state.
About a year after entering the school, Sinclair is wandering about town one day when he is approached by Alfons Beck. Beck invites Sinclair to join him for some wine in a local bar. Sinclair has very little tolerance, so his tongue soon loosens. He begins to talk about Cain and Abel and the alternative explanation of the story he learned from Demian. Beck tells him about consorting with women, allowing Sinclair into a world of pleasures of which he could not imagine partaking.
This first drunken escapade leads to many others. Sinclair falls in with a crowd that often goes to bars and sneaks around with women. Sinclair, however, never joins them on any of their sexual escapades. He has a yearning for a true, emotionally fulfilling love and cannot bear the thought of simply engaging in the physical act. Yet, Sinclair's debauchery was well known around school—he was often in trouble and on the verge of expulsion. Sinclair's father comes to visit him at school, twice, to try to get him to shape up and he is threatened with expulsion. His visit home that Christmas is particularly unpleasant. Sinclair begins to care less and less about his failure and to accept his doomed fate.
One day in a park by school, Sinclair takes note of a particular girl. Though he never approaches her, never talks to her, he becomes infatuated with her. He gives her the name Beatrice and almost begins to worship her. Sinclair's behavior changes at once. No longer does he go to bars. He takes a greater interest in school. His behavior becomes more "serious and dignified." Most importantly, Sinclair begins to paint. Sinclair putters around for a while and one day paints the face of a girl to which he responds very strongly. The face has male and female features and seems to Sinclair almost to be the picture of a God. Days later, he realizes that, though it does not look entirely like he does, the picture is of Demian.
The older Sinclair speaks of how this picture made him miss Demian. We learn that, at the time, Sinclair ran into Demian while on holiday vacation back home. Walking along the street, they bump into each other and Sinclair invites Demian to join him at a bar. The conversation is unpleasant and slightly antagonistic. Demian seems to disapprove of Sinclair's newfound drinking hobby.
One night Sinclair dreams about Demian and the coat of arms in the arch above the doorway of Sinclair's house. He sets out to paint the sparrow hawk that was in this coat of arms. Then he mails the painting to Demian.
The name of Sinclair's boarding school has been conspicuously generalized, but we are given the relevant information about the school. It is a Christian institution, since its name has "St." in it. On the one hand, Sinclair (as narrator) may have chosen to delete the name in order to de-emphasize the school's specific name and heighten the importance of its religious characteristics. He could have been at any Christian boarding school and his experience would have been the same—there was nothing spectacular or distinguishing about the school itself beyond its religious function. On the other hand, perhaps Sinclair has really forgotten the name of the school. In this case, the name would convey just how plain and uninteresting the school appeared to Sinclair, who could recall only that it was called St. something-or- other.
Sinclair often looks for validation in his interactions with older, authoritative children. Reflecting on his initial conversation at the bar with Beck, Sinclair writes: "When he called me a damned clever little bastard, the words ran like sweet wine into my soul." Just as he was seeking approval from Kromer and Demian, Sinclair wants Beck to think highly of him. As a result, he garners immense pleasure from the complement.
Beatrice is a human parallel to many of the ideas developing in Sinclair's head. Sinclair describes Beatrice as having some boyish features. As his paradigm of a woman, she is not entirely female. Just as he is beginning to see that he wants to lead a life that involves partaking of some of the things that traditionally are seen as evil, so too his ideal woman is one who is not exclusively female, but one who partakes of both "realms"—the male and the female.
Sinclair's dream at the end of the chapter is full of symbolism. The sparrow hawk, described as a "triumphant bird," represents the element of Demian's personality that is striving to break free. Sinclair cannot, however, break free on his own. He needs Demian's help. Demian's forcing him to eat the keystone represents the role Demian plays in fostering Sinclair's development—helping him learn to transcend his upbringing and be independent. Further, Sinclair comments at the end of the dream that he felt that the bird "had begun to swell up and devour" him. This represents the increasing independence on his part. By the end of this chapter, Sinclair has come much closer to forging his own path and truly breaking free of his childhood.