At the Pegasus Arms, Mr. Gradgrind and Mr. Bounderby fail to notice the elements of fancy, for it is dark and shabby. Sissy brings them to the room she and her father share, but her father is not there, and Sissy runs off. Two members of Sleary’s company, Mr. E. W. B. Childers and Master Kidderminster, speak with Mr. Gradgrind and Mr. Bounderby, but they largely fail to understand the slang of the circus men, who eventually communicate that Signor Jupe has run off and abandoned his daughter due to his embarrassment at his failing act.

Other members of the company, including leader Mr. Sleary, appear. They are a strange, uneducated folk, but they love and support each other. When Sissy returns and realizes what has happened, she is devastated. Mr. Gradgrind offers her a choice. She can continue her education (against Mr. Bounderby’s advice), but she must forget her circus friends. Mr. Sleary also offers a choice. He will take her on as an apprentice. Knowing that her father wants an education for her, Sissy decides to go with Mr. Gradgrind, believing that her father left her so that she could have a better life.