Six years have passed, and it is 1893. Ravenal and Magnolia have moved to Chicago, where they make a precarious living from Ravenal's gambling. At first they are rich and enjoying the good life ("Why Do I Love You?") By 1903, they have a daughter, Kim, and after years of varying income, they are broke and rent a room in a boarding house. Depressed over his inability to support his family, Ravenal abandons Magnolia and Kim. Frank and Ellie, two former actors from the showboat, learn that Magnolia is living in the rooms they want to rent. The old friends seek a singing job for Magnolia at the Trocadero, the club where they are doing a New Year's show. Julie is working there. She has fallen into drinking after having been abandoned by Steve. At a rehearsal, she tries out the new song "Bill." She appears to be thinking of Steve and sings it with great emotion. From her dressing-room, she hears Magnolia singing "Can't Help Lovin' Dat Man" for her audition, the song which Julie taught her years ago. Julie secretly quits her job so that Magnolia can fill it, without learning of her sacrifice.