Watson quickly realizes that Holmes is the man greeting him. Watson wonders how the detective found the hut, and why was he hiding on the moor. Holmes explains that he saw Watson's brand of cigarette stubbed out near the hut. As for Holmes' presence in the hut, on the moor, in Devonshire, the detective explains that he hid so the enemies would not know of his direct involvement. Holmes lied to Watson, he says, so that no one would discover him, should Watson decide to compare notes or bring his master some food. Suddenly upset that his reports went to waste, Watson learns that Holmes actually had them forwarded and has kept them close at hand.
While recounting the day's visit to Coombe Tracey, Watson learns from Holmes that Laura and Mr. Stapleton share a close relationship and that Beryl, the woman masquerading as Stapleton's sister is actually his wife. Shocked at these revelations, the doubting Watson demands proof, and Holmes tells of his own investigation into Stapleton's past, and his career as a schoolmaster up north. Stapleton, it becomes clear, is the enemy they have been after, and he has been using his wife-cum-sister to get at Sir Henry and Laura Lyons. He seduced Lyons and used her to lure Charles onto the moor.
Watson and Holmes decide to visit Laura Lyons again, to tell her of Stapleton's ruse and hopefully, to shift her loyalties. Meanwhile, a sudden scream is heard on the moor, and, upon investigation, they discover the body of Sir Henry or what appears to be a body in his clothes. As it turns out, Barrymore delivered a bunch of old clothes to the convict. The hound had sniffed Henry's stolen boot back in London and had attacked the right clothes on the wrong man. Just then, Stapleton shows up, assuming that the dead man is Henry. When he discovers the truth, he stammers: "Who-who's this?" When Watson wonders why the naturalist assumed it was Sir Henry, Stapleton admits it was because he had asked him to come over. Holmes defuses the situation by suggesting that the convict, Selden, must have just fallen and broken his neck, and goes on to tell Stapleton he intends to go home tomorrow, since he is not interested in the myths that plague the particular case. Suspicious but reassured, Stapleton goes home and the detectives head for the Hall.
Walking and talking on their way home, Watson and Holmes marvel at the self- control of their enemy, who held his tongue even after it became clear his hound had killed the wrong man. They wonder, now that the villain has seen Holmes, whether he will become more cautious or more desperate. Watson suggests that they arrest him at once, but Holmes reminds him that they have yet to establish the proof they need for a conviction.
Holmes has hope for tomorrow's interview with Lyons, but he also claims to have another plan in the works. He tells Watson not to tell Henry of Selden's death, and insists that he excuse himself from the dinner he and Henry were to attend at Stapleton's the next day.
After some light conversation with Sir Henry and the sad announcement of Selden's death to his sister, Holmes spies a portrait on the wall and learns that the thin cavalier in question is none other than Hugo Baskerville himself. Later that night, Holmes explains his interest to Watson, demonstrating the remarkable similarity between Hugo and Stapleton, thus establishing Stapleton's motive: as a Baskerville relative, Stapleton has designs on the inheritance.
The next morning, Holmes handles the removal of Selden's body and tells Sir Henry to keep his dinner appointment with Stapleton, excusing himself and Watson. Holmes tells the baronet that he and his friend are going to London, and though Sir Henry is understandably alarmed, Holmes tells him to trust him. He also insists that the baronet deliver the same message to Stapleton and that he walk home alone across the moor after dinner.
Later that day, at the train station, Holmes sends Cartwright back to London with instructions to send a wire from London, in Holmes' name, to Sir Henry. Holmes hears from another man, Lestrade, whom he intends to enlist later that night.
Meanwhile, Holmes and Watson head over to Laura Lyons' place, and Holmes tells her of Stapleton's secret marriage. Shocked and visibly upset, Laura demands proof, and Holmes produces a photo of husband and wife. Laura spills the beans: Stapleton had offered to marry her if she got a divorce, an endeavor that would require Sir Charles' assistance. The naturalist wrote Laura's letter to Charles and then insisted she miss the appointment, suggesting that he himself would pay the expenses. Stapleton even convinced Laura to keep quiet, telling her that she might get in trouble.
After a long period of narration by Watson, the return of Holmes, like the unexpected appearance of the convict, can seem a bit jarring. Whereas Watson left things a bit looser, and more uncertain, after Holmes arrives, there is no more mystery left to solve. When he suddenly announces who the criminals are, we are left wondering how he solved the puzzle.
In this section, we learn that Stapleton is the culprit and that, in effect, all our speculations were useless since we did not have the key piece of information, Stapleton's identity and marital status. This allows the mystery to move much more quickly. Since Holmes knows what he is doing, how to get information out of people, and how to piece together the clues, the events follow one after the other and the denouement comes at an appropriate pace. If Watson's clue gathering allowed us a chance to participate, Holmes' tightlipped detection builds up the suspense even after the mystery's solved about what Holmes will do to catch the criminal. This section also recalls the themes of mistaken identity and entitlement. First, the convict is mistaken for Sir Henry because he is in his clothes, and as a result, the hound attacks him. Also, Holmes observes Stapleton's close resemblance to Hugo Baskerville. The villian's noble birth seems to make sense, because he feels like he is entitled to a large sum of money. Similarly, Beryl's rejection of Henry makes more sense, since she is not a lower-class woman rejecting a higher-class man, but rather, she is someone is already taken.
At the same time, this section reveals Holmes' own game of disguised identity. Holmes shows that he, a gentleman, lived like a convict. He looked for food and lived in a bare-bones dwelling. Even though Holmes also had clean collars and a willing helper-boy, the book still asks how Holmes could have managed in such dire conditions.