A new student, Max Demian, appears in Sinclair's school. The son of a wealthy widow, Demian was a year older than Sinclair, but seemed almost adult. During one of Sinclair's scripture classes, Demian was forced to sit in and write an essay. After school, Demian approached Sinclair and began to engage him in conversation. They discussed Sinclair's house, about which Demian seemed to have a bit of knowledge. He told Sinclair that the arch above the doorway contained a coat of arms resembling a sparrow hawk.
Demian then brought up the subject of the day's lecture—the story of Cain and Abel. Demian then offers Sinclair a way of reading the Cain and Abel story that differs from what he learned in class. Demian argues that Cain's mark was something more of an air about him—he was a man of whom others were in awe. People, unable to deal appropriately with men of true worth, incorrectly interpreted this sign as indicating that Cain was in some way evil. Scared of Cain and upset because they were scared, people slandered him since it was their only available revenge. The notion that Cain was marked as evil, then, is to be dismissed as a fabrication of the weak. Sinclair, fascinated by Demian's deviant way of thinking, continued to ponder the matter long after Demian dropped him at his house.
Kromer was continuing to torment Sinclair in ever worse ways. Sinclair was forced to steal to pay the original two marks, but was then further blackmailed since Kromer knew about each of these incidents of theft. Eventually, Kromer demands that Sinclair bring him his sister. Terribly troubled after realizing what Kromer might want to do with his sister, Sinclair walks around for a while. He bumps into Demian, with whom he had not had much interaction since the conversation about Cain and Abel. Demian engages Sinclair in a conversation about his relationship with Kromer. He asks what it is that binds Sinclair to Kromer, suggesting that he could think of no other reason than that Kromer "had something" on Sinclair. Demian insists that Kromer be made to stop even if it were to mean Sinclair's killing him. Of course, Sinclair does not take well to this idea and they part, Demian promising that something will be done to alleviate the situation. About a week later, Sinclair encountered Kromer randomly on the street. Kromer, visibly scared, simply turned and walked away.
Excited to finally be free of Kromer, Sinclair seeks out Demian to thank him for his help. He tries, but cannot get Demian to reveal how he accomplished this tremendous feat. Soon after, Sinclair admits the whole incident to his parents. He then returned to the comfort of his parents' home, away from Kromer, but also away from Demian.
Six months later, Sinclair asks his father about Demian's interpretation of the mark of Cain. His father replies dismissively that it is an old, false heresy.
The story of Cain and Abel continues the parade of biblical imagery to be found in Demian. Further, it presents another traditional contrast between good (Abel) and evil (Cain). The alternative explanation of the story that Demian offers is significant for reasons far beyond the fact that it captures the attention of the young Sinclair. His interpretation attacks the traditional order of things—traditional views of good and evil. This theme recurs throughout the novel as Sinclair is constantly acting against the community's opinion about what is good and what is evil—about what is acceptable behavior and what is not.