That evening, a river pageant is held in honor of the Prince of Wales’s investiture. Lighted barges float along the Thames to the palace, each bearing soldiers, diplomats, or noblemen. Tom appears, dressed in bejeweled splendor. His life as a celebrated prince is in deep contrast to his lowly life as a pauper.

In the meantime, John Canty has captured Edward, the true Prince of Wales. Edward resists John’s grip, but Canty raises his cudgel to strike the boy. A figure intervenes and the stroke hits him instead, knocking him to the ground.

Canty hauls Edward into Offal Court to the one-room lodgings of the Canty family. Edward keeps insisting that he is a prince and must be returned to his father the king. Mrs. Canty exclaims that “Tom” has lost his sanity by reading so many books about the life of princes. Canty tries to strike Edward again, but Mrs. Canty shields him from the blows. Edward breaks free, stating that a woman will not take the blows in his stead and dares Canty to give him his worst. Canty orders Edward to bed along with everyone else.

Mrs. Canty wonders at the change in her son. He is so completely different from what he had been that morning that she begins to speculate that the boy may indeed be someone else. She tries to think of some way to test his identity but can think of nothing.

Finally Mrs. Canty remembers a time that Tom had been exposed to a blast of gunpowder. Ever since, Tom always has thrown up his hand at any sudden noise or occurrence. She goes to the spot where Edward is sleeping and holds the candle to his face, knocking on the floor by his head. Edward awakens, but he does not throw up his hand. She tries several times throughout the night, but still there is no sign.

Mrs. Canty tries to believe that Tom’s new madness drove the habit out of his mind, but she cannot accept this. She comes to realize that this boy is not her son.

In his sleep, Edward cries out for Sir William, telling him that he dreamed that he was a pauper. He awakens Tom’s sister Nan, who asks him who Sir William is. She remembers that “Tom” is now mad.

A knock on the door awakens the family. A messenger informs Canty that the man he struck down was the priest, Father Andrew, which puts Canty in danger of the law. The entire family flees. Canty has hold of Edward when they run into the revelers at the river pageant. Canty is stopped and given a drink. When Canty takes hold of the cup with both hands, Edward manages to escape and lose himself in the crowd.