The Dwarf, attracted to the sidewalk grate by the cries of the young boy, discovers Jim and Will and takes mental pictures of them with his bulb-like eyes. Meanwhile, the Illustrated Man questions the owner of Ned's Night Spot concerning two boys whom he is seeking.
Mr. Halloway comes close to the boys' hiding place a second time when he leaves Ned's and, on an unexplainable whim, visits the cigar store to purchase a cigar he does not even want. Jim catches sight of Mr. Halloway and wants to call to him for help, but Will senses that his father is not strong enough as a person to help them here, and he squelches Jim's cry.
When Mr. Halloway looks down and discovers the boys beneath the grate, he understands his wild impulse to purchase a cigar. The boys experience another moment of panic when the Illustrated Man stands on the grate directly over the boys while he speaks to Mr. Halloway. The Illustrated Man explains that the local Carnival has chosen to honor two local boys as celebrities by giving them free tickets to all the rides. When he shows Halloway the pictures of the winners, the pictures turn out to be lifelike images of Jim and Will, one tattooed on each of the Illustrated Man's hands. Mr. Halloway attempts nonchalance, giving false identities to the tattooed pictures, but the Illustrated Man is not deceived. Although he does not know the last names of the boys for whom he searches, he has a strange control over them. With each movement of his hands, each bit of pressure applied to their pictures, the boys feel intense pain.
When Jim and Will overhear the Illustrated Man's conversation, Will surmises that little Miss Foley, lost, alone, and frightened, must have given the Carnival their names in return for a possible forward ride on the carousel.
While still in his hiding place beneath the sidewall, Will learns of the fate of the Dust Witch: She is not dead, and as she seeks the boys, she gives happy townsfolk much delight by telling them through verse that although she is blind, she can tell colors of eyes and can sense lies, goals, and souls. Her announcement that she sees the Illustrated Man speaking to an old man is particularly painful to Mr. Halloway. The Witch, in spiderlike motions, has felt his soul and has begun to monopolize on his weakness — his displeasure with his age. In spite of the seriousness of the situation, Mr. Halloway demonstrates no outward fear of the Witch. Instead, he makes jokes about his twenty-five-cent cigar, even daring to blow cigar smoke into her face. At each jovial rejoinder, the Witch reacts as if she has been wounded. A second puff of smoke blown into her face makes her retreat, the Illustrated Man following behind.
But the Illustrated Man does not disappear before Mr. Halloway introduces himself, says he works in the library, and invites the Illustrated Man to visit him there some time. His reply, "you can be sure, Mr. Halloway, I will," foreshadows a more ominous encounter which is to occur in the future.
The boys are told to stay hidden until dark and then come to the library. Before they arrive, Mr. Halloway wants to do some investigating about this strange Carnival to see if he can devise a plan that will destroy it.
This chapter focuses on the juxtaposition of good and evil. Halloway and the two boys are threatened by the evil powers of the Carnival due to weaknesses within themselves, whereas the other townsmen find the coming of this Carnival a joyous and merry adventure.
Closely related to this idea of good and evil existing simultaneously is the belief that happiness and laughter can loose the powerful grip that evil holds on humanity. Will was victorious over the Dust Witch as a result of smiles and laughter. Mr. Halloway, too, gains the upper hand on the Dust Witch through his pranks with cigar smoke. Yet the Carnival seems to be holding tightly to Mr. Halloway. Although he is thought of more highly by the boys now, the Dust Witch has fathomed Halloway's weakness and intends to do all she can to turn that weakness into his own tragic undoing.