Bound in the cottage after Caroline’s confession, Mallory sees Margit’s ghost again. Margit’s touch brings a shared vision of the lakeside scene where Margit lost her child, along with a wave of guilt and forgiveness that Mallory experiences as both Margit’s grief and her own. The moment ends when Ted enters, reveals that he secretly replaced Caroline’s heroin with baby powder, and cuts Mallory free.

Ted then shocks Mallory by confessing that he has long been fixated on her. He says he tried to drive nanny candidates away, admits he has been protecting her in his own mind, and announces a plan to flee with her to Washington using money he hid from Caroline. Ted insists Caroline is dangerously unstable and wants to abandon Teddy behind to avoid being pursued by both Caroline and Margit. Realizing Ted is delusional and dangerous but seeing no better option, Mallory pretends to accept his plan and prepares to escape with him until she can reach police.

Before they can leave, Caroline returns and shoots Ted through the cottage window. While Ted bleeds on the floor, Caroline forces Mallory back under her control and reveals another violation: Ted had secretly installed a webcam in the cottage and watched Mallory, including intimate moments, under the excuse of monitoring her sobriety. Caroline decides to stage the scene as self-defense, ordering Mallory to take a kitchen knife so Caroline can claim Mallory murdered Ted and attacked her. When Ted makes a last desperate move and grabs Caroline’s legs, Mallory uses the distraction to run.

Mallory first reaches safety outside, but then remembers Teddy is still asleep in the main house. Fearing Caroline will flee with him, Mallory doubles back, sneaks inside, wakes Teddy, and carries him out as Caroline closes in. With no safe help nearby, Mallory runs with Teddy into the Enchanted Forest, crosses the trails and the mossy bridge, and climbs with him into their tree hideout. As police sirens and searchers approach, Caroline finds them and tries to coax Teddy down by claiming Mallory has suffered a psychotic break and hurt Ted.

Teddy starts moving toward Caroline, but in that moment Margit takes control through him again. He seizes the broken arrow from Mallory, jumps from the tree, and stabs Caroline repeatedly in the neck while Caroline tries to protect him from the fall. Mallory understands that Margit has just saved her life, but also that if the truth comes out Teddy could be blamed or institutionalized. She pulls Teddy away, carries him into the cold river to break the trance and wash away the blood, and keeps hold of the broken arrow.

When police and search teams finally surround them, Teddy regains awareness and has no clear understanding of what happened. Rescuers report finding another wounded woman nearby while officers order Mallory to drop the weapon. Seeing Margit one last time beyond the ring of lights, Mallory chooses to protect Teddy by claiming responsibility herself, saying, “It was me,” before she drops the arrow and Margit disappears.