Jack accidentally unleashes the Krogg from a cave, and the two battle across the forest!
With the Calliope Carnival (where he had been help captive) ablaze behind him, the Werewolf climbs into the nearby hills. He comes across a campsite where two hunters sleep, and takes the meat cooking over their campfire. The hunters awaken, and one fires his rifle at the Werewolf. The shell grazes his skull, and he falls unconscious to the bottom of a cliff.
Meanwhile, after firefighters have controlled the carnival fire, Jack Russell's sister, Lissa, and their friend, Buck Cowan, search around the fairgrounds for him. Jack, back in human form and lost deep in the woods, finds a cave to use for shelter. Inside, he discovers a friendly rabbit, as well as moans from deeper within. With a makeshift torch, Jack explores and finds an oak door, along with the skeletal remains of the door's builder. Breaking the lock off the door, Jack looks inside, but finds nothing.
The skeleton, however, holds a diary, which Jack picks up and reads. It was written by Amos Treach, a dabbler in the occult who released a murderous demon named Krogg. In penance, Treach built a cell in the cave, into which he lured and trapped Krogg, then stood guard until his death. After finishing the diary, Jack drifts off to sleep.
At the home of Jack's step-father, Philip, Lt. Lou Hackett pays a call in his investigation into werewolf sightings.
That evening, Jack again becomes the Werewolf and encounters Krogg, who used the lifeforce of the rabbit to be reborn and now seeks the man-beasts' essence. Their fierce battle is interrupted by the vengeful hunters from the previous night, but they provide easy prey for Krogg. Now fully restored Krogg chases the Werewolf into the cave. The demon belches fire at the lycanthrope, who dodges the flame. The blast instead causes a cave-in, trapping Krogg.
The Werewolf lopes away, while behind him, the rabbit, possibly still possessed by the demon, squirms out of the rubble.