Mr. Tulliver, upon losing the lawsuit against Wakem, remains optimistic. He would ask Furley, who held the mortgage on the mill and house, to buy the property and keep the Tullivers on as tenants. Tulliver had signed away the family's furniture as collateral on the loan of five hundred pounds from a client of Wakem's, but he lets Mrs. Tulliver ask the Pullets to buy up the loan, so they could keep their furniture. Tulliver dispatches a note to Maggie's school asking her to return home, as he wants her by his side. Then Tulliver goes home to Mrs. Tulliver, who still does not know the full extent of their trouble, and angrily tells her not to worry.
The next day Tulliver rides downtown to see Gore, his lawyer, about asking Furley to take buy the mill and keep Tulliver on as miller. On his way to the office, a clerk delivers him a note from Gore. Tulliver reads the note on the way home. It explains that Furley has already transferred the mortgage to Wakem. Mr. Tulliver has been found lying hear his horse, insensible.
When Maggie arrives home, Tulliver is vaguely conscious and has lost some memory. He seems anxious about the letter and to have Maggie near him. Mrs. Tulliver sends for her sisters, who gather downstairs and deem Mr. Tulliver's bad luck as fate and judgment upon him. Maggie and Mrs. Tulliver agree that Maggie should fetch Tom from school. On the carriage ride home, Tom expresses hatred toward Mr. Wakem, whom Tom is convinced has been planning to ruin their father.
Maggie and Tom return to their house to find a stranger smoking in the parlor. Maggie does not know who he is, but Tom understands that he must be the bailiff and feels pained and ashamed. Maggie checks on her father, and then they go in search of their mother, whom they find in the store room in the attic, crying over her best goods. Mrs. Tulliver is despondent that all her goods shall be sold and is dramatically pessimistic about their future: "we shall be beggars we must to the workhouse." Mrs. Tulliver explicitly blames Mr. Tulliver for their troubles, and Tom, too, begins to feel reproachful toward him for the first time. Maggie is angry at the atmosphere of bitterness toward her father, as well as the implication that she is shut out from Tom and Mrs. Tulliver's grief. Maggie reproaches them both and returns to her father. Tom becomes annoyed with her but softens upon seeing her at their father's bedside.
Mr. and Mrs. Glegg, Mrs. Deane, and Mr. and Mrs. Pullet gather at the Tullivers'. The narrator remarks on the rising fortunes of Mr. and Mrs. Deane, one of many sources of ill will and quarreling among the Dodson sisters this morning. Mrs. Tulliver beseeches the sisters to buy up her good china and linens, though Mrs. Deane and Mrs. Pullet will buy only the few items they want for themselves. Mr. and Mrs. Glegg encourage Mrs. Tulliver to concentrate on the necessities, such as beds, instead of luxuries.
The Dodson sisters look for Tom and Maggie to be brought in the room so they can be humbled by the sisters' charity. The aunts and uncles allude to Tom and of all the money spent on his education and warn the children that they must work and bear the brunt of their father's "misconduct." Tom quiets Maggie's temper and respectfully proposes that they pay Mr. Tulliver's debt of five hundred pounds—with the interest to be paid by Tom himself—and save the Tulliver family some disgrace along with their furniture. Mrs. Glegg contends that the Tulliver debts extend far beyond five hundred pounds, making it futile to relieve even that debt. Maggie loses her temper and warns the aunts and uncles to keep away from the house if they don't mean to help at all. The aunts take this outburst as confirmation of their past predictions that Maggie will come to no good.
Mrs. Moss enters the troubled household, sympathetic and humble, as she has her brother's three hundred pounds still but cannot pay it back with eight children to feed. Mr. and Mrs. Glegg suggest that the security note should be found, and Mrs. Moss should be made to pay the debt. Tom interjects to relate that his father once told him that the Mosses should never be made to pay back the loan. Tom means to abide by his father's spoken will. Mr. Glegg suggests that he and Tom then find the promissary note and destroy it. Mrs. Moss is grateful, and she, Tom, and Mr. Glegg go upstairs to search for the note.
Events begin to move more quickly in Book Third of The Mill on the Floss. Contemporary reviews of the novel complained of the tediousness of the opening two books, filled as they are with metaphysical narrative rather than action. Yet it is only through this detailed exposition of the formation of Maggie's and Tom's characters that their respective responses to their troubled adulthoods seems to work in a course. For it is in these opening chapters of Book Third, that Maggie and Tom come directly into adulthood, already tired and harried by the stresses of taking over family affairs while their mother is distraught and their father ill. The adult characters notably resort to placing blame within the situation—Mr. Tulliver blames the supposed perniciousness of lawyers, Wakem specifically, while the Dodson sisters blame Mr. Tulliver himself. Thus it is left to Maggie and Tom to maturely act on matters and as they do, the narrative moves swiftly. Long meditative sections involving the narrator's personal opinions, or general historical information are shortened in favor of dialogue and shorter paragraphs.
Book Third's ambitious title, "The Downfall," is tempered with the narrator's sense of the un-epic quality of the subject matter—the bankruptcy of a small town miller and his family. The narrator calls attention to the dullness of the content of her story in the opening of Chapter I but points to the emotions involved as of an epic quality: Mr. Tulliver "was as proud and obstinate as if he had been a very lofty personage, in whom such dispositions might be a source of that conspicuous, far-echoing tragedy, which sweeps the stage in regal robes and makes the dullest chronicler sublime." Yet the narrative of the "tragedy" at hand continues to include the same sort of deflationary, satiric material used through the novel as a whole. Thus, Mrs. Tulliver in Chapters II and III is not so much condemned for her concern for her linens and china, as held up as an object of ridicule or humorous pity. Her mind sticks to the issue of the linens and china as though she cannot comprehend anything else. In Chapter II, she "stroke[s]" the linens "automatically," attentive to little else. In Chapter III, she manages to turn all conversation back to the linens and china, as when Mrs. Deane mentions medicating "jelly" and Mrs. Tulliver, in return, pleads for the safety of her jelly dishes. This treatment of Mrs. Tulliver has the double effect of deflating the epic quality of the family's tragedy and making Mrs. Tulliver more sympathetic; her ridiculous obsession invites our pity, rather than our censure.
In these opening chapters of Book Third, Maggie's personality is once again aligned with her father's. Beyond the fact that Mr. Tulliver summons Maggie in his trouble and recognizes only Maggie during his memory loss, their individual tendencies, too, are depicted as similar. In the same way that Mr. Tulliver has rashly and singlemindedly pursued the Wakem litigation—with no objective thought to the potential consequences—Maggie is shown to rush into situations without considering the outcome, as when she loses her temper with the aunts and uncles and thereby endangers the chances of their aid. Tom is shown to be the only member of the Tulliver family capable of attaining a prudent view of the situation and taking action accordingly.