In the town Fort Romper, Nebraska stands the Palace Hotel, which has been painted an eye-catching light blue. Any train coming through town will have a view of the hotel, which stands out from the winter landscape surrounding it and catches the gaze of anyone who passes by. While the hotel may appear garish and startling to many of the more civilized train passengers coming from the East, locals consider proprietor Pat Scully a skilled businessman for making his hotel stand out. Scully also often waits outside the train station, hoping to catch a few stragglers and convince them to spend the evening in his hotel.
Nebraska was the new American West during the period “The Blue Hotel” is set, and Western genre conventions set the scene for the paranoia and violence that will plague the hotel guests. The hotel's garish color and isolation within the landscape reflect the alienation of the hotel and its occupants from the civilized world beyond. The deceptive eye-catching blue and Scully's habit of coaxing people back to the hotel suggest that the hotel is not as safe or wholesome as Scully would like it to appear.
One morning, Scully manages to catch three such customers as they disembark from their train. One is a “shaky and quick-eyed Swede,” one is a “tall bronzed cowboy,” and one—the Easterner—is a “silent little man.” So boisterous is Scully in his hospitality as he walks the men back to the hotel that they likely would consider it “the height of brutality” to reject his accommodations.
The descriptions of the Swede, the cowboy, and the Easterner foreshadow their behavior at the hotel—the Swede's fear and paranoia will spark violence, the cowboy will act on his masculine impulse to present a strong front, and the Easterner will remain silent at moments when it is necessary for him to reveal the truth. The fact that these men feel they can't reject Scully's hospitality suggests that the men feel they cannot resist their fate.
Once inside the hotel, Scully ends a game of cards between his son Johnnie and an old farmer, with whom Johnnie had been having an argument. Johnnie goes upstairs with the guests' suitcases, while the old farmer remains downstairs with the new guests.
The cards appear here as a symbol of fate and deception. This argument foreshadows the fated arguments over cards later in the story that will lead to violence between the men. The argument also characterizes Johnnie as a hot-headed and volatile character.
Scully directs the men to a basin of frigid water, and while the cowboy and the Easterner readily wash up, the Swede only hesitantly dips his fingers in. When Scully leaves to direct his daughters’ in their preparation of lunch, his guests sit in the front room with the old farmer. There is an air of trepidation among the men, who “tread carefully amid new people” and respond succinctly to the farmer’s attempts at small talk. The Swede, however, remains entirely silent, and appears to be furtively sizing up the others.
The Swede’s behavior around the basin of water indicates his paranoia. As the men sit together without Scully, it's clear that they are trying to size each other up and also mask their own fears and vulnerabilities. The Swede does this most dramatically by remaining silent and watching without interacting with the others.
Later, at dinner, the Swede breaks his silence to ask Scully questions about local agriculture, yet barely seems to listen to the proprietor’s answers; his eyes move between the men before he finally makes a statement about how dangerous Western communities can be. He laughs and winks at the other men, who don't understand what the Swede means.
The Swede appears to fear Scully the least initially and to be hiding his anxieties through small-talk, so he doesn't appear suspicious of the others. However, his comment about the danger of Western communities and his strange laughter indicate that these questions are all a ruse, and that he is in fact very fearful of the Palace Hotel and its occupants. His desire to mask this fear confuses the other men, who don't understand his behavior.