The recap page now presents Moon's own memoirs, which are then continued in the story proper with a quote from R.L. Stevenson's "The Land of Counterpane."
Moon continues his work as nanny to the King and Queen's children, and is happy in that role. However he becomes more and more aware of the evil influence of the Unkshuss family, especially the patriarch, Pobidiah, who rules the empire from behind the scenes through money, religion, and blackmail.
Moon is also distracted by the sad life of the Lady Shady, whose hyper-sexuality covers up some deep psychic wound.
One night, Moon is wakened by King Macha, who brings him to his library. They get drunk and read the king's secret books, which have been banned by Pobidiah. However Pobidiah finds them, and Moon confusingly finds himself being seduced by Shady. With his mother's spirit acting as his conscience, Moon runs off before completing the act, only to find that Pobidiah has destroyed Macha's books and sent him back to the asylum. The Lady Shady then, under Pobidiah's cruel influence, accuses Moon of rape; through this stroke of blackmail, Moon is forced to leave the castle.