Betteredge married the woman who kept house for him, Selina Gomby, not because he loved her, but because it was cheaper to marry her than continue to employ her. Their marriage was not especially happy, and Selina died after five years, leaving Betteredge with a daughter, Penelope. Around this time, Sir John Verinder died, and Penelope was raised in the house with Lady Verinder's daughter, Rachel. As Betteredge became older, Lady Verinder eventually asked him to become House-Steward, the post that he currently holds.

As Betteredge writes this history, his daughter Penelope, now a teenager, reads over his shoulder and advises him that he should get on with telling of the diamond, not himself. Betteredge asks for the reader's forgiveness and begins his narrative a third time.

Penelope suggests to Betteredge that he explain events day by day and offers to refresh his memory by consulting her diary from the time period of the diamond theft. Betteredge begins on Wednesday, May 24, 1848.

On that morning, Lady Verinder tells him that Franklin Blake will come the next day to celebrate Miss Rachel's birthday. Betteredge remembers Blake fondly, though he has not seen him since he was a child, because Blake had been sent by his father to be educated in Europe.

The day of Franklin's arrival, Betteredge encounters three Indians and an English boy on the front terrace of the house. The Indians ask to give a performance, but Betteredge orders them off the property. Soon, Penelope runs up to Betteredge insisting that the Indians are dangerous. She has seen them on their way out, consulting a pool of black liquid held in the English boy's hand. She overheard them asking the entranced boy to prophesize about "the English gentleman from foreign parts" and the time of his arrival at the house. They asked the boy if the gentleman has got "It" about him. Betteredge dismissed this strange behavior as a rehearsal of their "hocus-pocus" performance. Penelope insists that Betteredge ask Franklin Blake what the talk of the Indians might mean.

Betteredge explains that he did later ask Franklin about this (as will be related soon), and Franklin treated the news of the Indians as no joking matter, and assumed that "It" referred to the Moonstone.