The lagoon, begins the narrator, is a little like the colors you see if you close your eyes very tightly. Wendy, Peter, and the lost boys spend many warm days swimming there, and listening to the mermaids singing. The mermaids don’t speak to anyone except Peter, but they sun themselves and comb their hair. At midnight the lagoon becomes a very dangerous place and the mermaids start to howl, but by then Wendy and the boys are always in bed.
The narrator is being slightly coy here – the lagoon is, in fact, the colors inside children’s eyes. The island and the lagoon are products of children's' imagination, and just as certain parts of the imagination are inaccessible to its possessors, certain parts of the island are inaccessible to the children. Peter, though, can travel to its most remote areas.
Wendy always makes sure the boys take a half an hour’s rest after lunch, and on this afternoon the boys are napping on Marooners’ Rock. Peter senses that pirates are nearby and wakes the others. Everyone dives underwater. Approaching is a boat carrying two pirates and Princess Tiger Lily. The pirates caught Tiger Lily snooping on their ship, so they leave the princess on Marooners’ Rock to drown. Peter might have let the pirates leave Tiger Lily and rescued her once they were gone, “but he was never one to choose the easy way”. Instead, he addresses the pirates in Hook’s voice and orders them to let the princess go. The confused pirates obey fearfully and set the princess down on land.
What does it mean, Peter’s aversion to “the easy way”? We know that Peter is very arrogant, and therefore likes performing difficult and impressive feats. But Peter is also always strictly fair, and allergic to any form of sneaking or deceit. Deceit, for him, is distinct from a trick the way a lie is distinct from a game. Does Peter sometimes risk others’ lives to fuel his arrogance, or out of loyalty to his idea of noble fairness?
But in a moment Hook’s actual voice sounds over the water. Hook swims to the boat and climbs in. He sighs sadly and tells the other pirates that the lost boys have found a mother. Smee does not know the meaning of the word, and Wendy exclaims in surprise and compassion. Hook points to a Never bird sitting on top of a nest that has fallen into the water, and explains a little wistfully that a mother never abandons her children. Smee wonders whether they might kidnap the boys’ mother and make her the pirates’ mother, and Hook agrees that it is a good plan.
We have said that in Neverland violence is free of hatred almost as a rule, and Hook is the ‘almost.’ Hook wants to kill Peter because he hates him, and perhaps it is his hatred – unique on the island – that renders him its one true villain. But even Hook is not a villain through and through; or, rather, a villain in Neverland need not be exclusively hateful. Hook is sentimental, and wants a mother like any other boy.
Hook asks about Princess Tiger Lily, and he is enraged to hear that the others let her go by his own orders. He thinks nervously that the order must have come from a ghost. Hook addresses the ghost, and Peter responds in Hook’s own voice and manner. Peter asserts that he is Hook, and that Hook is a “codfish,” which makes the other pirates look at Hook with some suspicion. But Hook and company ask Peter many questions, and since he can’t resist talking about himself he admits that he is Peter Pan.
Peter attempts to switch places with Hook the way that the boys switch places with the indians. But neither Peter nor Hook are really willing to play the game. The little boys lose nothing by being other people, but Peter and Hook temporarily lose something they both cherish dearly – their egos. Hook does not play the game because loss of ego is too frightening, and Peter does not persist because recovery of ego is too appealing.
The boys and the pirates engage in a short and bloody fight. Peter and Hook meet at the top of Marooners’ Rock. Peter is about to stab the pirate, but when he notices that he (Peter) is higher up and therefore has an unfair advantage, he gives a hand to Hook to help him up. Hook uses the lull to claw Peter twice with his hook. Peter is stunned by the unfairness, as all children are the first time they encounter it. After the first unfairness, a child is never the same – except for Peter, who always forgets it.
Fairness is the child’s version of justice, which is meant to ensure that all people are treated equally and without undue bias. Peter’s preoccupation with fairness means that he is concerned in every encounter to ensure that he and his opponent are equally matched. Yet Peter is quicker than Hook, and Hook is less scrupulous, so it is impossible to create equivalence between them.
In a minute Hook swims rapidly back to his boat: he is fleeing from the ticking crocodile. When the boys see Hook’s frightened retreat, but cannot find Wendy or Peter, they assume the two have left already and happily fly home. But Peter and Wendy are still on the rock: Wendy has fainted from fear and exhaustion, and Peter is badly injured. The water is rising all around them. Wendy wakes up, and they discover that neither of them is in a condition to fly or swim to shore.
Nevertheless, Peter’s movement toward equivalence is just as significant as Hook’s movement away from it. The author writes that a child does not recover from his first unfairness; Peter recovers from unfairness instantly—he is always a child; he never learns that the world isn't fair.
Suddenly, they feel something small touch them: Michael’s kite. Peter ties it around Wendy’s waist and it carries her off to safety. Soon he is alone, and the mermaids begin to sing. For a moment he is afraid. But it passes: he believes that “to die will be an awfully big adventure.”
Peter’s life is an inscrutable series of adventures. He has had so many, and for so long, it seems he must be having at least several at a time. His time moves in leaps and jolts. So he has no reason to believe that the adventure of death will be his last.