Betteredge apologizes for the slowness of his narrative, but "things must be put down in their places, as things actually happened."
After Penelope left him, Nancy the kitchen maid passes him sulkily and explains that Rosanna, the second housemaid, is late for dinner again and must be fetched. Betteredge offers to retrieve her from the Shivering Sands, her usual retreat.
Rosanna Spearman, an ex-thief, was hired into the Verinder household four months previously by Lady Verinder, from a Reformatory. Though the other servants knew nothing of Rosanna's past, she did not become friends with them, spending most of her time alone. Betteredge pities Rosanna, a nice girl with a deformed shoulder. He follows her out to the Shivering Sands, a stretch of ugly quicksand beach near the house. Betteredge finds Rosanna on the beach, crying about "the years that are gone" and her "past life." She feels drawn to the Shivering Sands because she thinks that her "grave is waiting" for her there. Betteredge tries to reassure Rosanna.
Franklin Blake, looking for Betteredge, interrupts Rosanna and Betteredge's conversation. Upon seeing Franklin, Rosanna blushes deeply and quickly leaves. Blake doesn't know her and wonders at her strange reaction.
Franklin questions Betteredge about the three Indians seen near the house. Franklin suspects that the "It" the Indians were wondering about is his uncle Herncastle's diamond, which Franklin takes out of his pocket and shows to Betteredge. Franklin explains that his uncle left the diamond to Rachel as a birthday present in his will and that he, Franklin, had been appointed to deliver it.
Betteredge expresses disgust at the mention of Franklin's uncle Herncastle, and Franklin asks him to explain. Betteredge describes John Herncastle as a "blackguard" who got the Indian diamond by dishonorable means. Back in England after his army service, Herncastle was shunned by the family and ended up alone, possibly with an opium addiction. Betteredge explains how Lady Verinder denied John Herncastle entrance into her home on the occasion of Rachel's birthday two years ago. That day, when Betteredge gave Herncastle the message that Lady Verinder declined to see him, Herncastle had said, "I shall remember my niece's birthday." He died eighteen months afterward.