Perivale St. Andrews is a beautiful "smokeless town of white walls" lying between two Middlesex hills. Barbara sits on the firestep of a parapet, looking out at the town. Several mutilated dummy soldiers lie around a shed. Cusins arrives by the path from the town.

Cusins reports that everything is perfect, wonderful, and real. Barbara's father's city only requires a cathedral to be a heavenly rather than hellish one. The company has even found Peter Shirley work as a gate and timekeeper. Stephen and Sarah arrive and confirm Cusins' report, praising the town hall, libraries, insurance fund, and pension fund.

Undershaft appears with a sheaf of telegrams announcing good news. The aerial battleship has wiped out a fort with 300 soldiers on its first trial. Cusins and Barbara are stunned.

Stephen compliments his father's social engineering but expresses one misgiving. He wonders whether comfort saps the workers' independence and weakens their sense of responsibility. Undershaft explains that "when you are organizing civilization you have to make up your mind whether trouble and anxiety are good things or not." For Undershaft, the presence of explosives is anxiety enough.

Responding to further questioning, Undershaft reveals that the foundry's many sheds are for the production of explosives. Stephen moves away from the shed in fear. Lomax assures him there is no danger. Bilton, a foreman, emerges from the shed and reports ironically that Lomax just lit a cigarette in the shed. Undershaft takes Lomax's matches.

Lady Britomart arrives from town carrying a bouquet she receive from the men at the William Morris Labor Church. A cynical motto decorates the dome, saying that, "No man is good enough to be another man's master." Britomart chastises Andrew for keeping the foundry to himself for years. While the industry might belong to the Undershaft tradition, the furniture, houses, and gardens certainly belong to her. He questions why Adolphus should inherit the business. Undershaft reminds her that Cusins is no foundling.