The Doctor and Leela flee before the giant rat. The Doctor uses the oil lamp to ignite the methane, briefly driving it back and giving them enough time to climb to safety outside. The Doctor realizes that someone has left the giant rat as a guard.
Casey and Jago enter the cellar and Jago continues to insist there’s no ghost. Jago spots a lady’s glove.
The Doctor asks Sgt. Kyle for plan of the sewers, but he doesn’t have any. Kyle does give them a message from Litefoot saying he wants to see them at the mortuary; they’ve discovered another Chinaman’s body. The Doctor quickly gets out before Leela can say anything.
Jago sends Casey home and turns to find Chang waiting for him. He invites the manager up to his dressing room. Jago tries to negotiate but Chang’s eyes flash and he hypnotizes Jago, telling him to forget that Buller was there and forget they had this conversation. once Jago is gone, Chang enters the cellar and opens a secret panel in the floor. Descending to the sub-cellar, he bows before a cloaked and masked figure who insists that they must find the time cabinet. The figure, which Chang addresses as Weng-Chiang, insists that the distillation process is yielding less energy each time. Chang tries to warn his master that the police are drawing closer but Weng-Chiang insists he has given Chang powers thousands of years beyond anyone’s conception. Chang says that he was unable to read the Doctor’s thoughts. Weng-Chiang wonders if the Doctor is a Time Agent, but notes that a Time Agent wouldn’t wait.
The Doctor and Leela discuss Buller’s death with Professor Litefoot. He has confirmed that the bite marks are those of a giant rat, but Buller was stabbed by a midget, given the angle of the wound. Leela is intrigued, shocking Litefoot. P.C. Quick arrives and confirms the dead man’s name. Having spoken with Buller’s mother-in-law, Quick has learned that her daughter, Buller’s husband, disappeared and Buller went to the Palace Theatre. Litefoot invites them to his home for supper. As they take a carriage, Litefoot notes that he was raised in China and his father was an attaché. The Doctor stops the carriage and tells Leela to stay with Litefoot while he goes to the Palace Theatre.
At the theatre, the Doctor introduces himself and Jago assumes he’s a performer. The Doctor performs a few magic tricks and notices that Jago has been recently hypnotized. He quickly hypnotizes him again and has Jago recite what he was told to forget. The Doctor has him remember everything and Jago talks about how Buller was there looking for his missing wife Emma. He remembers the glove and shows the Doctor the monogram with the initials E.B.: Emma Buller. The Doctor asks to see the cellar.
Chang and Mr. Sin take a carriage with Weng-Chiang and search for the Time Cabinet, in the house of an infidel. Weng-Chiang is clearly weakening and Chang promises to bring him two young girls the next day.
The Doctor and Jago enter the cellar and the Doctor discovers an over-sized money spider. The Doctor believes genetic disruption is responsible and wonders what is responsible. He wonders what lies beneath the cellar floor.
Litefoot arrives home to find his landlady has set out a cold meal. Leela immediately digs in without fork or knife and Litefoot feels obliged to do the same out of courtesy.
In Chang’s carriage, Weng-Chiang has a white disk that glows as they near the Litefoot neighborhood. The trio follows the trace to Litefoot’s home and Weng-Chiang insists the Time Cabinet is inside. Chang, concerned, tells his master to return and he’ll deal with everything. Weng-Chiang agrees, warning Chang not to fail him.
As the Doctor searches for the hidden passage, a ghostly image appears. Jago faints dead away and the Doctor goes to revive him.
Litefoot tries to teach Leela some manners. He goes to the window and spots a Chinaman watching the house. He gets a gun and goes out to confront the man.
The Doctor explains to Jago that the “ghost” is a hologram. They see a shadowy figure move through the theatre and the Doctor goes after it. The figure, Weng-Chiang tosses a stuffed horse’s head down and flees into the catwalks. The Doctor goes up after him but Weng-Chiang manages to knock him over the railing. The Doctor dangles from a curtain which rips, letting him swing safely down. Weng-Chiang slides down a rope and knocks Jago out, and then enters the cellar. Jago recovers and suggests they call the police, but the Doctor says that the phantom would simply disappear. For now, the Doctor suggests he go get supper to consider the matter.
Litefoot goes outside to confront the mysterious watcher. He finds nothing and returns to the house. As he enters, he calls out to Litefoot but is knocked out. Leela goes to investigate and opens the door to find herself face-to-face with Mr. Sin, wielding a knife…