Dick finally runs into Elsie Lilly and confesses his love for her. She tells him she doesn't want to settle down, but he tells her that he doesn't want to either (“Old Boy Neutral”). Georgina and Percy arrive at the Inn but they can't be sure whether Eddie and Elsie Darling are guests because the register is ruined. It is late so they decide to stay at the Inn as well. To the surprise of the clerk they also get two separate rooms. Georgina learns that Percy's wife is named Elsie and comes to the unsettling conclusion that she must be the same Elsie that Eddie loved long ago. Unhappily they both go to bed. Meanwhile, Elsie Darling knocks on Eddie's door because she is afraid a mouse is in her room. He comforts her and tells her to be brave (“Babes in the Wood”).