Sue is shocked to find Nanette in Atlantic City. Nanette at first lies and said she was only visiting her grandmother in Trenton, but Sue knows that cannot be true: Nanette's only living grandmother lives in Omaha, Nebraska. Nanette admits that she actually spent the night in Atlantic City. Against her protests, Sue arranges for her to go back to New York with Pauline. Sue overhears Billy speaking to the women and, assuming that he is having an affair with them, tells Lucille. Billy, to keep Jimmy's secret, does not deny it, and Lucille says she is leaving him. Meanwhile, Tom, shocked by Nanette's behavior, breaks off their relationship. Jimmy is oblivious to the confusion he's created (Finaletto Act II).