Following the death of his father, young Nicholas Nickleby travels to London with his mother and his sister Kate in hopes that Uncle Ralph might be in a position to offer some assistance. However, Ralph had little contact with his brother's family and feels no sense of obligation. A hardhearted businessman not at all surprised that his brother died penniless, his offer to Nicholas is to help him secure a not-so-ideal teaching position which Nicholas manages to obtain with Wackford Squeers. As for Kate, her uncle arranges a position with a dressmaker.

In London, Kate Nickleby has settled in quite well into her new job. She acts as hostess at her uncle's dinner party but is unprepared for the advances of one of the guests. After his conversation with Nicholas the previous night, Smike has run away from Dotheboys Hall. Nicholas is invited to tea by Miss Fanny Squeers but is shocked when her friend tells him Fanny thinks he's in love with her. When Smike is forcibly brought back to the school and given a severe beating, Nicholas lashes out at giving a severe thrashing. Nicholas sets off back to London with Smike accompanying him. He calls on his uncle Ralph's clerk Newman Noggs who had previously offered to help him should the need arise. When his uncle receives a letter from Mr. Squeers about the incident, he decides that young Nicholas needs to be taught a lesson.