As Gittes drives his convertible through an area marked by NO TRESPASSING signs, men on horseback fire on Gittes' car in the middle of one orange grove, and then pursue him through the narrow rows of trees. He is dragged from his crashed (and overheating) automobile, beaten (his nose bloodied), and his pockets emptied. The leader of the farmers wonders which of two hated groups Gittes represents and misdirects his anger at him: "Who are you with? The water department or the real estate office?" Gittes identifies himself as a private investigator, hired by a client "to see if the water department was irrigatin' your land." The shotgun-armed farmer is flabbergasted - the exact reverse is happening:

Irrigatin' my land? The water department's been sending you people out here to blow up water tanks. They put poison down three of my wells. I call that a funny way to irrigate. Who'd hire you for a thing like that?

Gittes now understands why the farmers are defending themselves - corrupt water officials have diverted irrigation water to cause a drought in some parts of the valley to force farmers out of the arid areas. And then they buy up their parched land at cut-rate prices and irrigate selectively. When he hands over Mrs. Mulwray's contract, one of the farmers is antagonistic: "Mulwray! That's the son-of-a-bitch who's done it to us." Gittes is knocked out cold when he calls the man a "dumb Okie" [a displaced migrant worker/farmer recently-arrived in California after being foreclosed.]

He regains consciousness with Mrs. Mulwray, his "employer" staring down at him, as he is surrounded by the farmers on a Northwest Valley porch. [This is Gittes' first rescue by Mrs. Mulwray. She was summoned by the farmer who found her name in his wallet.] As they drive back to town in Mrs. Mulwray's car, Gittes describes the political scandal to Mrs. Mulwray. He explains how drought-stricken valley acreage, artificially-created, is being purchased cheaply by land-grab speculation pending the reservoir's construction. (Water will eventually be directed to the valley's worthless land, making it extremely valuable.) Hollis was killed because he opposed the construction of the reservoir:

Gittes: That dam's a con-job...The one your husband opposed. They're conning LA into building it, but the water's not gonna go to LA. It's comin' right here.
Mrs. Mulwray: To the valley.
Gittes: Everything you can see, everything around us. I was at the Hall of Records today. In the last three months, Robert Knox has bought seven thousand acres, Emma Dill twelve thousand, Clarence Spear five thousand, and Jasper Lamar Crabb twenty-five thousand acres...They're blowin' these farmers out of their land and then pickin' it up for peanuts. You have any idea what this land would be worth with a steady water supply? About thirty million more than they paid for it.
Mrs. Mulwray: Hollis knew about this?
Gittes: That's why he was killed.

Something clicks in Gittes' memory about Jasper Lamar Crabb - his newspaper obituary column is in his pocket (at Ida Sessions' suggestion). A memorial service was recently held at the Mar Vista Inn for Crabb who died two weeks earlier. A fraudulent land swindle is in progress with phony names turning up on deeds of sale. Dummy, unwitting investors, including some who are penniless, senile or deceased, are the new proprietors-owners who are buying up the valley land. Gittes explains to Mrs. Mulwray: "He passed away two weeks ago, and one week ago, he bought the land. That's unusual."

They join forces and drive into the Mar Vista Rest Home and then enter, with another of Gittes' skillfully untruthful deceptions or pretensions. They misrepresent themselves as a rich couple who need to find a convalescent home for Gittes' dad. The unethical, anti-Semitic home director, Mr. Palmer (John Rogers) assures them that Jews are excluded and that strict privacy is maintained for all residents. On an activities board for the home, Gittes finds familiar names: "They're all there - every goddamn name. You're looking at the owners of the 50 thousand acre empire...They may not know it but they are." Some of the elderly residents (including a landless Emma Dill (Cecil Elliott)) are sewing a flag with the fish symbol of the Albacore Club, since Mar Vista is an "unofficial charity of theirs." [Cross is a patron of the Rest Home!]

Turning wise to their scheme, Palmer requests that they follow him out, and Mulvihill greets them in the lobby. After first urging Mrs. Mulwray to her car, Gittes beats up Mulvihill. As he leaves, he is rescued just in time from the nose-cutting thug when Mrs. Mulwray wheels into the driveway with the car. [This is her second rescue of him.] In a quick getaway, Gittes leaps onto her car, as they both avoid bullets that hit the windshield. [This is a foreshadowing of the final scene of the film.]

At the Mulwray mansion that evening, all the servants have purposely been given "the night off" by Mrs. Mulwray. Thinking that he has asked "an innocent question" about how deserted the place is, she observes that his questions are never to be taken at face value: "No question from you is innocent, Mr. Gittes." She mentions that his afternoon and evening have been fraught with danger, and wonders if this is typical of his whole life: "If this is how you go about your work, I'd say you'd be lucky to, uh, get through a whole day." Gittes mentions his past, dangerous police work for the district attorney in the alien, inscrutable, mysterious world of Chinatown when he did "as little as possible" - that was the last time he had experienced similar dangers.

Gittes changes the subject about why he left the police force in Chinatown by asking for some peroxide for his bruised nose. He removes his bandage in the bathroom, causing Mrs. Mulwray to exclaim at the ugly, naked wound: "God! It's a nasty cut. I had no idea." While she dabs on the peroxide, he notices that she has a black speck in the green part of her eye. She confesses that there is an imperfection in her vision: "Oh, that. It's uh, it's a fl-flaw in the iris...Yes, uh, it's a sort of birthmark." After visually exposing their flaws or deficiencies, their faces are so intimately close to each other that they kiss.

A post-coital scene shows them naked in bed and leisurely smoking cigarettes. Wanting to know more about his past, a loving, less urgent Mrs. Mulwray finds that he is reluctant to speak about his past in Chinatown - where "you can't always tell what's goin' on." [This is the clearest statement of the film's theme - that Chinatown is the locus of unforeseen tragedy.] But he finally reveals to her that with good intentions, he had tried to prevent something terrible from happening there to a woman he cared for, only to hasten the tragedy. This caused him to quit the police force - his life was changed forever. [His interference for the sake of a woman in his past is doomed to repeat itself by the film's conclusion. As his detective friend had cautioned, he should have done "as little as possible."]:

Mrs. Mulwray: Why does it bother you to talk about it?
Gittes: It bothers everybody that works there.
Mrs. Mulwray: Where?
Gittes: Chinatown, everybody. To me, it was just bad luck.
Mrs. Mulwray: Why?
Gittes: You can't always tell what's goin' on - like with you.
Mrs. Mulwray: Why was, uhm, why was it bad luck?
Gittes: I was trying to keep someone from being hurt. I ended up making sure that she was hurt.
Mrs. Mulwray: Cherchez la femme? Was there a woman involved?
Gittes: Of course.
Mrs. Mulwray: Dead?

Before he can respond, the phone rings, and she answers it with worry and concern in her voice after being told something troubling. Anguished, she replies cryptically: "Look, don't do anything. Don't do anything till I get there." After hanging up the phone, she insists that the call has "nothing to do" with Gittes, but she has to leave immediately (the call divides them irrevocably because he doesn't trust her) - she withholds her destination and her reasons for a hasty exit. When he tells her that he saw her father, she calls Cross "dangerous" and "crazy":

Mrs. Mulwray: Don't be angry. It has nothing to do with you or with any or all of this...Please, trust me this much! (She kisses him.) I'll be back. There is, uh, there is something that I should tell you about. The uh, the fishing club that old lady mentioned, uhm. The pieces of the flag...
Jake: The Albacore Club.
Mrs. Mulwray: It, it, it has to do with my father.
Jake: I know.
Mrs. Mulwray: He, he owns it. You know?
Jake: I saw him. (Mrs. Mulwray shrinks down and covers her naked breasts with her arms when her father is mentioned.)
Mrs. Mulwray: You saw - - my fa-father?...When?
Jake: This morning.
Mrs. Mulwray: You didn't tell me.
Jake: Well, there hasn't been much time.
Mrs. Mulwray: But, uh, what, what did he say? What did he say?
Jake: That you were jealous. That he was afraid of what you might do...Mulwray's girlfriend for one. He wanted to know where she was.
Mrs. Mulwray (kneeling by his side): I want you to listen to me. Now, my father is a very dangerous man. You don't know how dangerous. You don't know how crazy.
Jake: Are you trying to tell me that he might be behind all this?
Mrs. Mulwray: It's possible.
Jake: Even the death of your husband?
Mrs. Mulwray: It's possible. Now, please, don't ask me any more questions now. Just wait. Wait for me here. I need you here.

She showers and then leaves. Although strictly told not to follow her, Gittes disobeys her. He 'borrows' her husband's car and trails after her to an unfamiliar, modest house with the porch light on. (He made it easy to follow her in the dark by sneaking outside and kicking out the red cover from her right car tail-light.) While hiding outdoors, he watches through a side window with a half-drawn curtain as she first talks to her Chinese butler. In another room, he spies her late husband's visibly upset young blonde 'mistress' lying down on a bed (and being guarded, held or abused against her will?). Mrs. Mulwray forcibly administers drugs (sedatives, narcotics?) after they have conversed.

Jake sits in Mrs. Mulwray's front car seat when she returns to her car - she is startled and a bit angry to see him after his betrayal. Now in his investigative mode (only a few hours after having made love to her), he has concluded that she is involved in criminal activity, but what he has seen is inconclusive. [His earlier words to her haunt us - "you can't always tell what's goin' on."] She tells him that her "husband's girlfriend" is actually her sister, who is upset at having learned of her husband's death:

Jake: Come on, Mrs. Mulwray. You've got your husband's girlfriend tied up in there.
Mrs. Mulwray: She's not tied up.
Jake: You know what I mean. You're holdin' her against her will.
Mrs. Mulwray: I am not.
Jake: OK. Then let's go talk to her.
Mrs. Mulwray: NO! She's, she's too upset.
Jake: What about?
Mrs. Mulwray: Hollis' death. I-I-I tried to keep it from her. I didn't want her to know until I could make plans for us to leave.
Jake: You mean she just found out about it? (She nods.) It's not what it looks like, Mrs. Mulwray.
Mrs. Mulwray: What does it look like?
Jake: Like she knows more than you want her to tell.
Mrs. Mulwray: You're insane.
Jake: Just tell me the truth. I'm not the police. I don't care what you've done. I don't want to hurt you.
Mrs. Mulwray: You won't go to the police if I tell you?
Jake: I will if you don't.
Mrs. Mulwray: (She puts her head down, and accidentally honks the car's horn before divulging a crucial secret.) Sh-she's my sister.
Jake: Take it easy. She's your sister - she's your sister. Why all the secrecy?
Mrs. Mulwray: I can't...(anguished)
Jake: Is it because of Hollis? Because she was seeing your husband? Is that it?
Mrs. Mulwray: I would never have harmed Hollis. He was the most gentle, decent man imaginable. And he, he put up with more from me than you'll ever know. I wanted him to be happy. (She begins crying.)

Jake doesn't know whether to believe her or not - that she "would never have harmed Hollis." He leaves her car and she quickly asks: "Aren't you going - coming back with me?" He declines but assures her: "Don't worry. I'm not gonna tell anybody about this." She has again been misinterpreted his detachment: "That's not what I meant." He bids her goodnight: "Yeah. Well, uh, I'm tired, Mrs. Mulwray. Good night."

That night after showering in his own home, Jake restlessly lies on his bed. He hesitates to pick up the incessantly-ringing phone. Two phone calls by an anonymous caller [later identified as Loach] summon him to Ida Sessions' house. Early the next morning, Jake drives to the house's location and finds broken glass in the front door window. Inside on the kitchen floor, Ida's dead body is sprawled amidst spilled groceries. He flips through the contents of her wallet and finds a $2 dollar bill, an identification card, her Social Security Card and Screen Actor's Guild card. Ex-colleagues Escobar and Loach confront him - in the frame-up - with a flashlight beam from inside a darkened bathroom: "Find anything interesting, Gittes? What are you doin' around here?" They suspect that Gittes knows her or had something to do with her murder, because his phone number is written on her kitchen wall next to the phone. Loach and Gittes exchange a male/female sexual insult about his professional snooping (with his phallic-nose) into people's bedrooms, with a retaliatory reply about how Loach's wife has a lethal vagina:

Loach: What happened to your nose, Gittes? Somebody slam a bedroom window on it?
Gittes: Nope, your wife got excited. She crossed her legs a little too quick. You understand what I mean, pal?

Gittes is accused by Escobar, who has supposedly figured everything out, of having worked for Ida Sessions (they found the pictures he took and sent to her of Hollis at Echo Park in the rowboat with the girl). The detective then followed Mulwray until he was found murdered. Gittes is then told one tantalizing bit of unknown evidence (that Mulwray drowned with "saltwater" in his lungs), when Escobar accuses Evelyn of being her husband's murderer, with Gittes as an "accessory after the fact."

This broad hired you. Not Evelyn Mulwray...Somebody wanted to shake Mulwray down. She hired you. That's how come you found out he was murdered...Mulwray had saltwater in his lungs. You were following him day and night. You saw who killed him. You even took pictures of it. It was Evelyn Mulwray and she's been paying you off like a slot machine ever since.

Other false accusations made against Gittes include "conspiracy, and extortion - minimum." Gittes defends Evelyn Mulwray's innocence after telling Escobar that he is "dumber" than he thinks. He explains his theory of how Hollis' body was deliberately moved to the reservoir to divert attention from the ocean, although he was actually killed by the salt-water ocean where the water was being dumped:

What do you think? Evelyn Mulwray knocked off her husband in the ocean, then dragged him up to a reservoir 'cause she thought it would look more like an accident? Mulwray was murdered and moved because somebody didn't want his body found in the ocean...He found out they were dumpin' water there. That's what they were tryin' to cover up.

When Gittes can't prove his point, he takes the police to the isolated run-off location where water was being dumped nightly. Yelburton, now the new water commissioner, is reported to have confirmed Jake's contention with a twist: "There's irrigation in the valley, and there's always a little run-off after they do that. And he says Gittes knows this and he's been goin' around makin' irresponsible accusations all last week." To Jake's way of thinking, Escobar is implicated in the conspiracy with Yelburton and the lieutenant fears bucking the department's criminal activities - he "wants to hang onto his little gold bar." And he fears that Escobar may cause him to lose his own detective's license. Gittes is given two hours to present himself and his "client"-suspect Evelyn at Escobar's office.

Gittes enters the Mulwray mansion where he finds signs that the house is being closed up in preparation for a trip - the maid is covering furniture with white sheets. In the garden patio area, the gardener repeats his frustration - but adds two more words: "Salt water - very bad for glass." Gittes suddenly stops short with insight and clear vision - he realizes that the water in the estate's fishpond is salt water [what was found in Hollis' lungs]. He asks the gardener to fish out the sparkling object he had seen earlier but didn't have time to fish out. The object is a pair of cracked spectacles [Hollis' glasses?], leading Gittes to assume that Hollis was drowned by Evelyn in their domestic salt-water fishpond, and then his body was dragged to the reservoir. And he fears that Evelyn is planning to flee the scene with the crime's only witness - the young girl, and ultimately, she will frame him as an accessory to the murder.

Racing to the house where the young girl is hidden, Gittes finds a breathless Evelyn rushing to pack in order to catch a 5:30 pm train. He first demands to see "the girl" and then without explaining why, Gittes phones and summons Lieutenant Escobar to their location (1972 Canyon Drive) to turn her in. He then asks Evelyn: "You know any good criminal lawyers?" He is determined to force information from her about everything he believes she has been concealing about her husband's murder.