Back at the studio, a happy Mack has realized the potential of sound in his movies, with singing and dancing. Lottie Ames, another actress in Mack's company, has become a star ("Tap Your Troubles Away"), but Mabel has become a full-time drug addict and her reputation is ruined. To add further to the tragedy, her lover, William Desmond Taylor, is murdered, and she is the prime suspect. By the time Mack is willing to try to patch things up between him and Mabel, it is too late - she has died. But all musicals must have a happy ending, so Mack imagines a happier ending to their story ("I Promise You A Happy Ending").