Watson, Holmes, and Gregson are shocked at the news of Stangerson’s death. Holmes requests Lestrade’s account of his investigations, and the detective obliges, admitting that he had thought Stangerson was the murderer. With little success, Lestrade had spent the entirety of the previous day inquiring into Stangerson’s whereabouts between his meeting with Drebber at the train station and the time of Drebber’s murder. Lestrade ascertained that Stangerson was staying at Halliday’s Private Hotel. Wanting to catch Stangerson off guard, Lestrade went up to his hotel room—only to discover blood pooling out from behind Stangerson’s door. With the help of some men, Lestrade broke down the door and found Stangerson’s dead body on the floor next to an open window. Stangerson had been stabbed in the heart and above him was written the word “RACHE” in blood.
Like Gregson, Lestrade had been chasing down an erroneous lead, much to the amusement of both Gregson and Holmes. However, Holmes had not anticipated Stangerson’s death, proving that he is not infallible. Just as in Drebber’s crime scene, the word “rache” was written in blood near the body; however, unlike Drebber’s murder, which was caused by poison, Stangerson’s death was caused by a stab to the heart.
Lestrade tells the others that the culprit had been seen by a milk boy, who described the man as tall with a reddish face and a brown coat. Like Drebber, nothing had been stolen from Stangerson after his death. Stangerson carried no papers except a telegram saying “J. H. is in Europe.” At Holmes’ prompting, Lestrade lists other objects in the room: a novel on the bed, a pipe on the chair, a glass of water on the table, and a box of pills on the windowsill. Though Lestrade believes these are unimportant details, Holmes springs up and triumphantly announces that he has found “the last link…My case is complete.”
The milk boy’s description of Stangerson’s murderer matches the constable’s description of the drunk passerby and Holmes’ deductions about Drebber’s murderer. Seemingly out of the blue, Holmes gleefully and theatrically announces to the room that he has solved the case, again playing the role of magician for his audience.
Claiming he will prove his solution to the case, Holmes asks Lestrade for the pills, which the detective happened to collect at the crime scene. Holmes turns to Watson, asking if the light-colored and translucent pills are ordinary, to which Watson responds that they are likely water-soluble. At Holmes’ request, Watson fetches the landlady’s sick terrier—which he was supposed to euthanize the day before—and Holmes cuts one of the pills in half, dissolves a half into a mixture of milk and wine, and feeds it to the dog. The men watch the dog silently and expectantly, but nothing happens. Minutes pass by, and Holmes appears chagrined while Lestrade and Gregson are smug.
Indulging in showmanship just as he did when demonstrating his hemoglobin test, Holmes intends to prove his theory by engaging Lestrade and Watson in audience participation. Luckily, Watson’s laziness left the landlady’s dog (mentioned for the first time here) still intact and conveniently available to test the pills found near Stangerson.
Holmes almost begins to doubt himself, but then “with a perfect shriek of delight” he cuts the other pill in half, dissolves it into some milk, and feeds it to the dog, who immediately dies. Relieved that his reasoning was correct, Holmes declares that one of the pills was poisonous and the other harmless. He launches into a speech explaining why the detectives have failed to solve the case, but is interrupted by Gregson, who demands to know the identity of the murderer. Though Lestrade and Watson also urge him to reveal his findings about the murderer, Holmes is reluctant, as he is close to catching the man and doesn’t want Lestrade or Gregson to ruin the set-up.
Initially worried that he was wrong, Holmes is relieved to see that his theory is correct. As he had shown with his brief concern that Gregson may have solved the case before him, few things seem to disturb Holmes as much as the possibility of being bested by men he regards as his inferiors. Recovering from his self-doubt, he becomes once again arrogant and superior, rubbing in Gregson’s and Lestrade’s noses the fact of their failure.
At that moment, someone knocks at the door. It is Wiggins, leader of the “street Arabs,” who announces to Holmes that he has the cab downstairs. Holmes tells Wiggins to ask the cab driver to help him with his boxes. Under the pretense of requesting the driver’s assistance with his luggage, Holmes manipulates the driver into bending down, allowing the consulting detective to put handcuffs around his wrists. Holmes introduces the man to the room as “Mr. Jefferson Hope, the murderer of Enoch Drebber and of Joseph Stangerson.” Hope frees himself from Holmes and attempts to throw himself out the window, but Gregson, Lestrade, and Holmes drag him back. Holmes declares that they will take the man’s cab to Scotland Yard and that he will answer any questions about his investigations into the case.
Wiggins returns, solving the mystery of what Holmes had the street urchins looking for. Once again, Holmes indulges in the theatricality of a magician, deftly handcuffing the cabdriver without him noticing and announcing to his audience the final act: the capture of Drebber’s and Stangerson’s murderer, Jefferson Hope. Triumphant, Holmes takes charge of the situation. Only now that he has solved the case, thus demonstrating his superior detective skills, he is willing to reveal his knowledge.