Fire And Water - As the dwarves and Bilbo Baggins explore the vast caverns, the narrator reports Smaug's wrathful attack on Lake-town. Bard tells the citizens the dragon will attack the community. Many people get in boats to escape the fire and destruction, but Bard and other archers try to slay the beast.

The old thrush—who overheard the mention of Smaug's weakness—carries that information to Bard. With information on Smaug's unprotected spot, the defender uses a last black arrow and kills Smaug. Survivors of Lake-town arrive on shore where they face desperate conditions; winter is coming, and they are without food or shelter. Fortunately the Elvenking and his warriors arrive. An agreement is reached by which some men and elves will remain to build shelters and find provisions while a party will set out for Lonely Mountain to verify the fate of Thorin and of the treasure in Smaug's lair.