From a book of records in the tomb, Gandalf learns that Balin and the dwarves were attacked by orcs and also by a strange beast with no form or body. Gandalf gives the book of Mazarbul to Gimli; all pay their respects to Balin's tomb and leave.
Suddenly, the orcs appear. After a fierce battle in which Frodo is wounded, Gandalf stops the orcs with a spell. As if in warning of what is to come, however, a very strong presence nearly makes it impossible for Gandalf to use his power.
The further they go the hotter it gets and they realize that the lower levels are on fire. They come across a deep chasm that can only be crossed by a narrow bridge. Gimli leads the way and just as Legolas draws his bow, he sees a sight that fills him with terror. A great shadow, shaped like a man but having far greater power, is pursuing them. It is Balrog, the beast that attacked Balin and the dwarves. Balrog has a blade like a stabbing tongue of fire in one hand and a throng of whips in the other. He leaps across the chasm and races toward them.
Boromir draws out his horn and blows it. Gandalf stands on the bridge and commands the Balrog to go back. But it comes at him with its sword. Gandalf counters it with his own sword and before it can attack a second time he cuts the bridge right out from under Balrog. With a cry the Balrog falls, but he entwines his whip around Gandalf's knees and drags him to his death as well.
In this chapter Frodo earns the respect and admiration of his crew, especially for the way he has fought off the orcs and managed to get himself wounded. Just as Bilbo did in The Hobbit, Frodo grows braver.
The company has lost a great friend and guide in Gandalf, but though they are devastated they manage to keep their wits. When they exit Moria, they realize that the dark night of the caverns has been an illusion. Now, in the daylight, they are full of grief and mourning for their lost leader.
The company moves on and comes to Durin's stone. They look into the blue waters of Mirrormere, then proceed to Lothlorien, land of the elves. Sam and Frodo, who are hurt, are carried on the backs of Boromir and Aragorn (Strider). The company rests for a while and when Sam's wound is examined Aragorn realizes that it will heal fast.
In the forest of Lothlorien, the travelers decide to rest. The elves of the forest welcome them, and for safety's sake, they blindfold Gimli (since elves do not like dwarves). The company climbs up two trees and spends the night there. Late at night a company of orcs passes by.
The next day Aragorn decides that since Gimli must be blindfolded, they will all proceed with blindfolds. Later in the day a message comes from the Lord and Lady of Galadrim, welcoming them all, so that no one needs blindfolds. The forest is exquisite and the company admires it. They are told that a strange creature is roaming the forest but since it has not been seen, they do not know if it is good or evil. The company has seen the heart of Elvendom and felt the wonderful power of the lady of the Galadrim.
Aragorn proves his just leadership by blindfolding everyone in the name of equity. As testament to the evil wind in the air, the companions seem to grow suspicious of one another. Fortunately Aragorn maintains control and is able to quell the growing suspicious natures of his men.