Judge Driscoll, Pudd'nhead Wilson, and the twins have a pleasant conversation. The twins ask to see Pudd'nhead's "Calendar," and compliment him on it. "Tom" comes over to Wilson's house to join the gathering. Though he has seen the twins before, while he was robbing houses, he pretends to be seeing them for the first time. For their part, the twins find "Tom" an interesting study: Angelo thinks he is pleasant and attractive, while Luigi is suspicious and thinks that "Tom" is a little too polished. "Tom" begins to harass Pudd'nhead about his failed law practice and his fingerprinting hobby. Pudd'nhead takes advantage of the occasion to take prints from "Tom," Luigi, and Angelo. "Tom" laughs at Pudd'nhead, telling him that twins have the same prints and so he has wasted a piece of glass. Pudd'nhead ignores him and files away the prints.
"Tom" then begins to mock Pudd'nhead's interest in palmistry. The twins interrupt him, mentioning that their palms were read several years ago and that most of what the palm reader had to say has come true. "Tom" is surprised, and Pudd'nhead is asked to read the twins' palms. Luigi records the previous palmreader's predictions on a piece of paper that is not shown to Pudd'nhead. To everyone's surprise, Pudd'nhead's reading matches what Luigi has written down: Luigi has killed a man. Angelo quickly tells the group that Luigi did it to save his brother's life, and draws a picture of the weapon Luigi used, a magnificent Indian dagger covered in symbols. He still has the knife in his possession, he tells the men, and its sheath is covered with precious gems. "Tom" is secretly thankful for this information: he has stolen the knife, but thought that the jewels were just glass and had been ready to sell it for a pittance. Pudd'nhead takes "Tom"'s hand and offers to read it, but "Tom" jerks it away defensively. He says that he has nothing to be afraid of, since he isn't a murderer. He then quickly begs Luigi's pardon for his hasty comment.
Just then a member of the town's anti-temperance league comes to the door to invite the twins to a pro-rum meeting. Although Angelo professes a dislike for strong drink, he and Luigi, accompanied by "Tom," go to the gathering. The twins are immediately elected to membership in the society. Angelo refuses the drink he is offered, and the crowd is offended, but Angelo's graceful refusal and his explanation of his principles soothes them and they begin to sing "For He's a Jolly Good Fellow." "Tom" gets rather drunk and insults the twins by suggesting they do a ventriloquist act. Luigi is offended and kicks "Tom" in the rear, sending him flying into the audience. A riot ensues, during which someone calls out, "Fire!" The crowd stampedes out of the hall and the town fire company arrives, nearly destroying the building with a flood of water.
The next morning Judge Driscoll and Pembroke Howard, the lawyer, go fishing. They encounter another man, who tells the judge about "Tom"'s encounter with Luigi and mentions that "Tom" had Luigi brought before the town court for assault and battery. The judge is mortified that "Tom" has compromised the family honor by not fighting back, as the son of an old Virginia family should. When the judge encounters "Tom" that night he orders him to challenge Luigi to a duel. "Tom" seems afraid of Luigi and refuses, causing the judge to disinherit him once again. The judge then issues a challenge of his own to Luigi. "Tom" is distraught and begins making plans to pay off his debts and regain his uncle's favor. He goes to see Pudd'nhead Wilson, who tells him that his uncle's desire to behave honorably is correct. Pudd'nhead berates "Tom" for not consulting his uncle about the matter immediately after the offending kick.
Pudd'nhead then changes the subject and tells "Tom" there has been another round of thefts in the town. "Tom" pretends that he is missing some items too. The town constable and the justice of the peace arrive and mention that a stooped old black woman has been seen behaving suspiciously, and they are sure she is the thief. Pudd'nhead says that Luigi's magnificent dagger has been stolen, and that a reward of five hundred dollars has been issued for it. All the pawnbrokers in the area have been alerted. "Tom" panics, realizing that if he cannot sell the dagger, the rest of what he's stolen won't be enough to cover his debts. Pudd'nhead tells the men that he's sure the dagger will turn up, and that when it does, it will reveal the thief's identity. He refuses to reveal how this will happen. Before the constable and the justice leave they ask Pudd'nhead to run for mayor of Dawson's Landing, which is incorporating itself as a city. Pudd'nhead agrees.
Luigi accepts the judge's challenge to a duel. The judge is pleased and comments on Luigi's admirable behavior. He notes that it is a shame to be fighting for such an unworthy figure as "Tom", but "Tom" is family (the judge thinks). The judge decides to redraw his will, making "Tom" heir once again. After the judge and Pembroke Howard leave for the duel, "Tom" enters his uncle's study and finds the new will. He is ecstatic at first and resolves to reform, but then realizes again that he cannot pay his debts now that it has become impossible to pawn Luigi's dagger. He goes to see Roxy, who tells him of the duel and insults him for refusing to fight himself. It must be his black blood, she says, that makes him act so cowardly. He notices that Roxy's face is bleeding and asks her what happened. She says she was grazed by a bullet from the duel and reports that Luigi was hit three times, in the shoulder, hand, and cheekbone. He fills Roxy in on his financial problem. She tells him to make arrangements with his creditors to pay heavy interest for the next couple months, in anticipation of the judge's death. She also tells him that she will check in on him every day, and if he fails to do as he is told, she will reveal the secret of his birth. Frightened and worn down, "Tom" agrees.