Outside the Laguna club it pours rain; inside, the Two Mysterious Men watch Marlow's show.
In hospital, Mr. Hall asks Reginald about his book. It's a mystery, set in a club, with spies--Nazis and the like. It's called The Singing Detective, by P. E. Marlow.
Back in the story, the shorter Mysterious Man tries to shoot Marlow, but hits the band's drummer. The Mysterious Men flee, with Marlow in hot pursuit.
At the hospital, Philip is startled and deeply suspicious when Nicola visits. Cut away to Nicola typing THE END on the computer as Finney watches. They exult: "The Singing Detective, an original screenplay by Mark Finney".
In the ward, Philip notices the Two Mysterious Men across the room, and asks Nicola who they are. She doesn't know or care, but asks why he does. "Paranoia", he answers. "I'm totally paranoid." When challenged by Nurse Mills, the Two Mysterious Men bolt from the ward in exactly the same way they left the club in the detective story. Nicola admits she has been to Philip's flat and found a letter from a film production company headed by a Mark Finney, offering a substantial sum for rights to The Singing Detective.
Marlow has another session with Gibbon, and they play the word-association game. While Philip is being wheeled back to the ward, Nicola and Finney are seen repeating his words.
Philip returns in his mind to his story, free-assocating all the way. In some repeated scenes, Marlow has taken Binney's place.
In a London underground station, young Philip and his mum wait for a train. He confronts her about what he saw in the woods: "shagging with Mr. Binney, Mark's dad." She strikes him as the train approaches, and he runs away.
In the ward, young Philip runs in through the doors as old Philip stares.
Back in the detective story, the police are once again pulling Sonia's nude body out of the river, as Reginald's voice-over question dissolves to the schoolteacher's "who did it?" Young Philip's response is convincing, well-rehearsed. Mark Binney is dismayed, and cannot understand why he is being singled out for this humiliation.
Reginald meanwhile has discovered something in his book: "That tart in the river, It isn't her at all!" Philip's mental version of the scene now shows the body to be Nicola.
The Two Mysterious Men have run and run, until they find themselves deep in the Forest of Dean. They hear someone calling after Philip. It is Philip's dad, carrying a suitcase as he searches through the forest, but Philip is up in his tree and says nothing in reply.