The Saxons and their liberators now meet at Locksley's trysting place in the forest. Here, out of gratitude for his role in the battle, Cedric grants Gurth his freedom. When the spoils from the castle are divided, the Black Knight takes his due, but Cedric proudly refuses a share of his Norman captor's wealth. The Black Knight also frees de Bracy, though he warns him that if he does not behave more honorably in the future, a worse fate than captivity will befall him. The Friar arrives leading Isaac, whom he has "captured," by a rope; Isaac, the Friar, and Prior Aymer debate ransom payments for Isaac and the Prior. The Friar and the Black Knight argue, and good-naturedly exchange blows. When Isaac learns that Rebecca has been kidnapped by Brian de Bois-Guilbert, he is despondent; to secure his freedom, Prior Aymer agrees to write a letter to de Bois-Guilbert urging him to let the girl go. As Isaac sets out for the stronghold of the Knights-Templars, the Saxons bid farewell to Locksley and his merry men, preparing for the somber task of returning Athelstane's body to his castle. (De Bois-Guilbert's blow has apparently killed him.)
De Bracy hurries to Prince John, to whom he declares that Richard has returned to England. He also tells him of Front-de-Boeuf's death and of de Bois-Guilbert's kidnapping of Rebecca. John is alarmed, but orchestrates a plot to attack Richard and take him prisoner: The Prince has no intention of relinquishing the throne.
Isaac travels to Templestowe, the lair of the Knights-Templars. Here, he shows Prior Aymer's letter to Lucas Beaumanoir, the Grand Master of the knights. The letter casts aspersion upon de Bois-Guilbert's honor by asserting that he is keeping a Jewess at Templestowe, but it also heavily hints that Rebecca has somehow bewitched the Templar to make him fall in love with her. Albert Malvoisin, the ruler of the stronghold, furthers this claim, saying that Rebecca's witchcraft, and not de Bois-Guilbert's weakness, is to blame for her presence at Templestowe. For his part, de Bois-Guilbert has found himself increasingly in love with the indomitable Rebecca, who has continued to reject his advances.
Malvoisin lectures him sternly on the error of his ways, reminding him that his conduct will be highly detrimental to his career in the order. He asserts that Rebecca must be "made to suffer" like a sorceress; de Bois-Guilbert insists that she will not, but Malvoisin caustically reminds him that he has no authority in the matter. Beaumanoir decrees that Rebecca will be immediately tried as a witch, and Malvoisin--who does not believe that Rebecca is really a sorceress, but who only wishes to save de Bois-Guilbert from disgrace within the order--begins to search for grounds on which to convict and execute her.
The third phase of the novel, centering around Rebecca's captivity and trial at Templestowe, is also the most loosely organized; Scott builds gradually to the novel's climactic scene, with many of his main characters scattered in various locations rather than concentrated in the same place, as was the case at Ashby-de-la-Zouche and Torquilstone Castle. Isaac is near Templestowe, Rebecca and de Bois-Guilbert are at Templestowe, the Saxons are traveling to Athelstane's stronghold of Coningsburgh to bury him, Ivanhoe is in a priory being treated for his still-lingering injury, and Richard, still in disguise as the Black Knight, is about to begin traveling through the forest. Because of this dispersion, Scott is unable to build dramatic tension in a single location, and as a result the end of the novel feels somewhat unfocused.
However, the evocation of the Order of the Templars at Templestowe provides an interesting new setting for the book. This arcane order of knights existed across Europe during the Crusades; they were founded in the early twelfth century, and by 1139 they had been placed directly under the rule of the pope, which meant that they were essentially free from any secular king, and from any save the highest religious authority. Originally designated to fight for the Christian cause in the Holy Land (the emblem on their tunics, a white field with a red cross, immediately identified them in combat), they quickly became a political and military force in Europe, with vast treasure and castles in every major European country. As the mission of the Templars shifted from religious to political goals, they began to incur powerful enemies; at the time of the setting of Ivanhoe, around 1194, they were near the height of their power, but by the early fourteenth century they faced substantial opposition from many of the kings of Europe. In 1314, the last Grand Master of the order, Jacques de Molay, was burned at the stake, effectively ending the Order of the Templars.