Nicholas and his sister Kate arrive penniless and jobless in London after the death of their father. Nicholas has an important encounter with Newman Noggs.

Nicholas has been found employment by his Uncle Ralph at Dotheboys Hall, an academy for boys owned by the drunken and brutal Wackford Squeers.

Unknown to Madeline, Ralph and Gride have come upon some important information about her. Meanwhile, Smike falls ill after escaping from Squeers.

Noggs and Cheeryble come to Nicholas’s and Madeline’s aid as Squeers and Ralph finally get their comeuppance and the secret of Smike's parentage is revealed.