Frank brings in the newest patient, who was dropped off at the sanitarium with no identification. He takes Sister Jude to the patient's cell and the nun asks what her name is. She gets no answer and points out that the patient caused a disturbance when someone at the bar where she was made an anti-Semitic joke. The patient says that she broke a bottle and cut them, and Sister Jude asks if she lost someone during the war. When the patient simply whistles, Sister Jude says that they'll start treatment in the morning.
Shelley, strapped to a table, asks Arden if she's going to die. He tells her that she'll probably live forever and gives her an injection.
The patients are working in the bakery when Kit approaches Grace and asks for a cigarette. She notices the bruises on him and realizes that Arden has been interrogating him. Kit remembers Arden interrogating him and shooting him full of x-rays trying to find the alien tracer. He asks Grace if she believes in his story and she says that she does but that it doesn't matter. Kit insists that remembering their stories and asks her to tell him hers, and Grace talks about hers.
Grace is living with her father, stepmother, and stepsister Patsy. She hears something in the middle of the night and goes downstairs, and see the farmhand, Red, killing her father with an axe. Grace runs downstairs, slams the outside door, and then hides in the pantry. The killer runs outside while Grace backs up and sees her stepmother's corpse hacked to pieces behind her.
Grace finishes her story by telling Kit that Patsy accused her of killing her father. Patsy was it with Red, planning to inherit the farm. The police believed Patsy, not Grace, and locked her up. Kit assures Grace that he believes her and she says that she missed the horses the most because of the freedom they gave her. Kit assures her that she'll be free.
Thredson meets with Lana and asks where she went during the movie. She sticks to her story and Thredson assures her that he won't say anything to Sister Jude. He then points out that she reappeared later, just before Sister Jude left.
As Sister Jude sends everyone to their rooms, Lana wonders what they saw and figures that Shelley got out. Kit warns that they can't tell anyone because they'll know they tried to escape.
Thredson tells Lana that she doesn't belong in the sanitarium and that she was right to try and escape. Lana tells him that he's a hypocrite and recites from the psychiatric manuals, saying that it describes her lesbian tendencies as insane. Thredson insists that he sees her as intelligent like himself and that he wants to "cure" her so that he can get her released. She tells the psychiatrist that she's always been a lesbian and that there is no cure, and Thredson warns her that he'll only be there for a week. If she refuses to trust him, it won't end well.
Later, the new patient writes a letter to Kitty, saying that it's like Amsterdam and that the people there are resigned to die. Lana comes over and warns her that if they catch her writing, they'll throw her in solitary. She suggests that the new patient consider her a friend, but when she gets no response she walks away. Arden comes in and the new patient stares at him in shock. She walks over to Arden and says that he was there at Auschwitz. As the guards pull her away, the new patient says that she is Anne Frank and that Arden should remember her because she was there.
The guards take Anne to Sister Jude. She explains that despite the reports of her death, she hid among the bodies and the British rescued her and nursed her back to health. Anne kept to the streets in Germany and met a soldier, Private William Snow of New Jersey. Snow brought Anne to America but was killed in Korea in 1952. Anne wanted to contact her father but realized that he had a new life. Also, Anne realized that people were noticing the Holocaust because of her diary. She realized that she had to stay a martyred 15-year-old to do good. Sister Jude dismisses her story as indecent but Anne insists that Sister Jude is indecent for having a Nazi working there.
Thredson calls in Kit and explains that if he finds him sane then he'll go to the electric chair. He doesn't think he's crazy or evil, and suggests that society drove him to acts of evil. Kit's psyche then created a fantasy of alien abduction to absolve him of his guilt. Thredson doesn't believe that Kit's execution would serve any purpose, and offers to lie if Kit faces the truth of what he's done.
Anne tells Sister Jude that Arden was originally Hans Gruper with the SS. She saw him when the train arrived and thought that he was kind and gentle at first. He saved twin boys and later he brought sweets for the young girl prisoners. Arden offers to save some girls and flipped a coin to choose certain children. The ones that came back were changed, and were sworn to secrecy.
Thredson suggests that Kit felt guilt over marrying a black woman. The pressure eventually found release when Kit killed Donna Burton, the first of Bloody Face's victims. The next murder happened a few months later when Allison Rydell was taken at her home. Alma was the third victim, and Kit said that Billy and his friends were at the garage. Thredson suggests that they followed Kit home and Alma decided not to hide anymore, and Kit killed her. Kit insists that it wasn't him.
Anne insists that Arden is Gruper and shows Sister Jude her concentration camp tattoo.
In the common room, Lana collects her medicine and imagines winning a reward for her story exposing the evils of Briarcliff. In her speech she thanks the other patients, who inspired her with their suffering. Lana takes her pill as she vows to do whatever she has to so that she can get out. She then goes to see Thredson and asks when he can start the therapy.
In the bakery, Kit is pounding the dough when Grace comes in. He wonders if he imagined the whole thing and admits that Thredson is starting to make sense. Grace points out that self-doubt is a sign of sanity, and Kit wonders if he really is a killer. He grabs her by the throat and asks her what she thinks, and she says it doesn't matter and she'll be with him. They kiss and then have sex on the table. As they finish, Frank comes in and sees them together.
Frank takes Kit and Grace to Sister Jude's room and Sister Mary Eunice takes out a crop. Sister Jude says that she's impressed with her change in personality and then asks Kit and Grace if they're trying to make a murder baby. Kit insists that Grace is innocent and Grace tells her to get the beating over with. However, Sister Jude says that a more permanent step is needed and proposes sterilization. As Grace and Kit object, Frank comes in and tells Sister Jude that two detectives are there to question Arden. The nun tells Sister Mary Eunice to secure them until the paperwork goes through, and Sister Mary Eunice tells Frank to take Grace to cell. Once they're alone, Sister Mary Eunice shows Kit Grace's file and says that she's not the innocent girl that Grace claims.
Sister Jude goes to Arden's office and finds Detectives Byers and Connors waiting. Aden doesn't want her there but Sister Jude is glad to be there. The detectives explain that Arden has been accused of roughing up a local prostitute. The prostitute reported seeing obscene material and Nazi memorabilia in Arden's bedroom. Arden insists that he was Briarcliff and the detectives asks Sister Jude if she can confirm his story. Sister Jude is interested in the mention of Nazi memorabilia while Arden storms out. When Sister Jude eagerly asks if they're going to arrest Arden on prostitution charges, they explain that they're homicide detectives. They ask if Kit would have the skill to skin a woman and remove her head.
Thredson gives Lana apomorphine and shows her photos of women in risqué poses until she throws up. He explains that he's conditioning her body to be repulsed by certain triggers and then shows her a slide of Wendy, naked in bed, and explains that he found it at Lana's home. She tells him to administer more of the drug and she throws up looking at her lover. Lana then asks for a few minutes before the next one and Thredson says that it's time to move onto the conversion part of her therapy, and says that she may enjoy it. He brings in a male patient, Daniel, who has volunteered to help Lana. Daniel removes his robe and Thredson has Lana study his physique. She says that she doesn't feel anything and Thredson asks her to touch herself. Lana reluctantly does so and the psychiatrist has her touch Daniel's genitalia. Sobbing, the reporter masturbates and Thredson assures her that she's doing good work... until she throws up. Thredson escorts Daniel out and tells Lana that unfortunately, aversion/conversion therapy won't work with her.
Monsignor Howard meets with Sister Jude, who tells him about the prostitution and the Nazi memorabilia. Howard tells her that her obsession with Arden has to stop and Sister Jude explains that Anne Frank has testified against Arden, identifying him as a Nazi. She insists that she is trying to protect the institute but Howard knows that she's been drinking again and wonders if she is up to the pressures of management. The monsignor tells her to reflect on whether alcohol has compromised her judgment and dismisses her.
As Arden tends to Shelley, Howard calls to tell him that they're onto him and to dispose of any evidence that could incriminate him.
Sister Jude walks in the woods with the Mother Superior. She admits that she has slipped and drank, and the Mother Superior suggests that God has given her a chance to triumph. When the Mother Superior wonders if that's the only reason Sister Jude came to her, Sister Jude says that there is a war criminal among them but Howard refuses to pursue the matter. The Mother Superior offers to put Sister Jude in contact with someone who can help her. When Sister Jude refuses to betray Howard, the Mother Superior says that God has set her upon the path and it's up to Sister Jude to clear it.
Sister Mary Eunice and the guard bring Kit to a cell next to Grace's. Once they're alone, Kit assures Grace that he hasn't been castrated yet. He asks why she lied and that there was no handyman, and demands the truth. Grace explains that her father raped her as a young child. Finally she told her stepmother, who gave her candy to keep quiet. When she had enough, Grace took an axe and killed her stepmother. When she found out that her father sold her horses, Grace killed him as well. That was when she realized what her life was and that there was no turning back. Grace asks if Kit is repulsed by her and he says that he admires her.
In the common room, Lana watches the patients around her. Thredson comes over and apologizes for failing to help her. She thanks him for trying and he gives her the photo of Wendy. When she warns that they won't let her keep it, Thredson promises to take her with him when he goes in seven days.
Kit asks to see Sister Jude and confesses to her about his crimes. As she assures Kit that God knows all, Sister Jude remembers killing the girl. Kit insists that he must have killed Alma because everyone is saying that he did. He mumbles about the creatures in the woods and then asks for forgiveness. Sister Jude assures him that God will forgive all that seek Him and Kit agrees to admit everything if she can help.
Arden drags Anne to his lab and asks what she's been saying about him. She insists that she's been saying the truth but Arden points out that Anne Frank died years ago. Anne asks if he plans to do the same thing to her that he did to the girls at Auschwitz, Arden says that she's about to find out. He turns to lock the door and then discovers that she has a gun. Anne says that she's not the only one who is onto him but doesn't mention that she stole the gun from Connors when she bumped into him. She demands that Arden confess.
Something shuffles behind one of the doors. Distracted, Anne looks at it and Arden rushes at her, but she shoots him in the leg. She demands the key and he finally hands it over. When she unlocks the door, she finds a crippled and hideous scarred Shelly in the room, begging for death.