Franklin picks up where Jennings's diary leaves off. Back in London, Franklin and Mr. Bruff are met by Mr. Bruff's small spy, Gooseberry, who informs them that Mr. Luker has left his house for the bank. Franklin sends the women home and goes to the bank with Bruff. At the bank they are informed by more of Bruff's men that Luker has entered the inner office of the bank and has not yet come out. They see no Indians around, but there is a tall, dark- complected man with a wide face and full beard who looks like a sailor.
When Mr. Luker emerges, they think they see him hand something to a man in a gray suit. Bruff's men follow Luker, and Bruff and Franklin follow the man in the gray suit, who turns out to be a chemist who knows nothing of the Moonstone. Gooseberry disappeared in pursuit of someone else, and Bruff and Franklin wait for him at Bruff's office. Franklin eventually returns home to find that Gooseberry has called for him there and will return in the morning.
The next morning, Franklin receives a visit from Sergeant Cuff. Franklin fills him in on the updates of the case. Cuff gives Franklin an envelope with the name of the person Cuff suspects as the thief inside and tells Franklin not to open it until he finds out the truth. Gooseberry soon arrives and tells Franklin that he followed the dark-complected sailor from the bank. Franklin is called from the room, and Cuff continues questioning Gooseberry.
When Franklin returns, Cuff and Gooseberry have prepared to take a cab to the east of the city. In the cab, Cuff explains that Gooseberry followed the sailor to a steamboat and then to an eating-house. Gooseberry had noticed that the man was also followed by a man dressed like a mechanic who was working for the Indians. Gooseberry followed the mechanic who followed the sailor to a pub and inn called "The Wheel of Fortune." The sailor let room number 10 for the night. After a little while Gooseberry noticed a disturbance. The mechanic had gone to room 10, drunkenly claiming it was his room and was thrown out of the pub. Gooseberry had followed him to the street and saw that he really wasn't drunk. Gooseberry, confused, had returned to Franklin's house to report. Cuff guesses that the mechanic pretended drunkenness to force his way in and examine the layout of the room the sailor was to sleep in with the diamond and report back to the Indians.
They reach "The Wheel of Fortune" in the cab and find that the sailor has not budged from room 10 all morning and will not answer the landlord's knocking. The landlord gets a carpenter to take off the door. The sailor is on the bed, dead. Gooseberry finds the box and receipt for the Moonstone. Cuff shows Franklin that the sailor's face is a disguise of makeup. Pulling off the beard and washing off the makeup, Cuff reveals that the sailor is Godfrey Ablewhite—the same name of the culprit that Cuff has given Franklin in the envelope.
Chapter I of Cuff's narrative is a letter to Franklin dated July 30, 1849. Cuff writes to say that his report of the investigation is not quite complete and will be given to him soon.