The chapter opens with Noah asleep on the floor of Fagin's apartment. Fagin is plotting based on the information Noah has overheard. Fagin is partially upset that Nancy is not seeing a lover, and that therefore Fagin cannot blackmail her; but Fagin recognizes, in this turn of events, that he might be able to spin circumstances to his advantage. While Fagin is thus stewing, Sikes enters the apartment.
Fagin thought he would have a different situation for blackmail—he thought he could use Nancy's lover for this purpose—but he realizes, quickly, that he can cause Sikes to kill Nancy, and thus cause Sikes to be chased by police for a crime unrelated to Fagin.
Fagin reveals to Sikes, slowly, that Nancy has spoken to "a gentleman and a lady" on London Bridge; he insinuates to Sikes that Nancy has "peached," or told of Sikes' and Fagin's illegal activities. Fagin wakes up Noah, who also tells Sikes that Nancy has been drugging him at night in order to get him asleep and allow herself out of their shared apartment. Sikes is infuriated by this information and vows to retaliate against Nancy.
The die has been cast—after this point, Nancy will no longer walk free. It is ironic and horrifying to consider that this is how Nancy is repaid for her loyalty—she is killed, in an instant, by the man who is supposed to love her, and to protect her. But such is the nature of the social "bonds" connecting those in Fagin's gang.
Fagin has therefore spun the turn of events, lying to Sikes that Nancy has sold out Fagin and Sikes, when in reality Nancy has avoided doing just that. Sikes returns to his apartment in a fury, and screams at Nancy that she is an ingrate and a liar. Nancy attempts to defend herself by telling the truth—that she did not betray Sikes and Fagin—but Sikes strikes her twice, on the head, with his pistol, knocking a deep gash in her skull. He then beats her with a club until she dies.
There is little Nancy can say to stop Sikes at this point. It is out of the question that Sikes would stop to consider whether Fagin had a vested interest in lying to him about Nancy's involvement—Sikes does not go in for those types of psychological games. He merely resorts to violence.