Stephen balks at his father's insults to the government. Undershaft brutally reminds him that Undershaft and Lazarus are the government. A patronizing Stephen replies that with his own old-fashion breeding he cannot help but continue to believe that the national character governs fair England. Undershaft rejoins that Stephen is a born journalist.
The group returns to the library. Cusins wonders why he and Barbara are traveling to Undershaft's "Works Department of Hell." A scandalized Undershaft promises that Wilton Crescent is a "spotlessly clean and beautiful hillside town." He never has to play the tyrannical owner because the community's system of social hierarchy keeps everything in order. Cusins recoils in revulsion.
Barbara announces to her father that she will never forgive him for taking a man's soul from her hands. Craftily Undershaft asks if his daughter really believes she can "strike a man to the heart" without leaving a mark on him. Barbara finds hope again and departs for the foundry, searching for "some truth of other behind all this frightful irony."
Act III begins immediately prior to the family's trip to Undershaft's ideal planned community, a masterwork of social engineering. These scenes consist of a number of short dialogues.
In the first scene, Barbara has shed her uniform, prefiguring her ultimate declaration that "Major Barbara will die with the colors." Her disillusion with the Army is complete. A weary Cusins declares himself lost to Undershaft's gospel. As before, the tactless Lomax, speaks, as Lady Britomart remarks, using the formulaic "schoolboy drivel" that successful society men speak in England. His consolation for this is comical: unlike the Anglican Church, the Army always had a bit of "tosh" to it. Clearly, as Shaw insists in the preface, the unmasking of the "tosh" to the Army would implicate the established church as well.
In the subsequent private exchange between Undershaft and Britomart, the former explains the necessity of Stephen's dispossession with what one could call the myth of the foundling. For Undershaft, the foundling is a man who, without family or education, has risen through the world by his will alone. The tragedy is that the welfare state tames these men from birth, rendering them indistinguishable from the herd. The foundling figures as a New Man of sorts, a man whose thoughts and actions free from the binds of social convention. Only such a mythically nameless man can assume the Undershaft mantle and carry forth the firm's gospel.