One day in class, Sinclair finds a note has been left for him. It says, "The bird fights its way out of the egg. The egg is the world. Who would be born first must destroy a world. The bird flies to God. That God's name is Abraxas." Though the letter is unsigned, Sinclair is sure that it is from Demian. Sinclair is distracted from the lesson, but perks up when he hears the teacher mention Abraxas. Abraxas, the instructor explains, can be thought of as a "godhead" who represents a unification of the divine and the satanic.

About this time, Sinclair has a recurring dream. In it, he returns to his parents' home and sees the sparrow hawk, illuminated above the house. His mother approaches him, but as he reaches to hug her, he sees that it is not his mother, but rather someone who looks like Demian and his painting.

Realizing that he will soon enter university, Sinclair thinks about his future. He sees that he does not have a set plan as those who are sure they want to become Doctors, Lawyers, or Businessmen. Rather, he wants to simply "live in accord with the promptings" of his "true self." He wonders why this is so difficult to do. As the months progress, Sinclair becomes lonelier, though more and more confident in his relations with his peers.

Walking around town, Sinclair occasionally notices a small church from which organ music emanates. One day, passing by the church, Sinclair hears the music and stays outside to listen. He does this many more times in the following weeks, secretly listening to the organist play. One night he decides to follow the organist as he leaves the church. Sinclair trails him to a bar and sits down with him, uninvited. They begin to talk and Sinclair brings up Abraxas. Pistorius, the organist, takes a great interest in hearing this and questions Sinclair about how and what he knows about Abraxas. Sinclair tells him briefly of his experience and of the note he recently received from Demian. Pistorius invites him to come sit inside the church and listen to him play.

At their next encounter, Pistorius takes Sinclair to his home. He explains that he used to be a student of theology, but that he had since stopped and was something of the rebel of his family. They then meditate by the fireplace. On their next encounter, Pistorius presents Demian with an idea about human personalities. He says that people define their personalities too narrowly, taking note only of the traits that deviate from the norm. In fact, he argues, our personalities contain a vast wealth of information, containing all "that once was alive in the soul of men."

The older Sinclair comments that his conversations with Pistorius never introduced him to radically new ideas. However, they did help him see things a bit more clearly and think a bit more independently. Often, he says, he would tell Pistorius of his dreams and Pistorius would help him understand their significance. Pistorius was helping him to further break free.