Bilbo has escaped from the goblins and Gollum by using the magic ring. He wanders the mountain side looking for the dwarves and Gandalf, at last he hears some voices and walks towards the sound; he is still wearing the ring, so he is invisible. He hears Gandalf and the dwarves arguing about rescuing him from the goblins. The dwarves want to leave him behind, but Gandalf is staunch in his desire to rescue his friend.

Bilbo walks past the look-out dwarf and takes off the ring. The others are astonished by his sudden appearance and wonder how he got past the look-out dwarf. Bilbo does not mention the ring, instead he tells them he snuck past the look-out. The dwarves have a new appreciation for this stealth hobbit, because until now they thought he was more of a hindrance than a help. Bilbo tells them of his adventures in the tunnels with Gollum and the goblins, but he does not mention the ring. He likes the new way the dwarves are treating him and does not want to end it.

Gandalf tells them they must move quickly, so they can finish walking out of the Misty Mountains before the goblins catch up with them that night. As they walk, they begin to hear wolves howling and soon they are surrounded by wolves called Wargs.

The Wargs sometimes work with the goblins to kill and capture humans. Gandalf along with the dwarves and Bilbo climb tall pine trees to escape the Wargs. This works for a little while, but soon they are surrounded by hundreds of Wargs, so Gandalf uses his wand to send fire raining down upon the Wargs, catching some on fire and causing pain to others. The Wargs are soon joined by goblins, who can climb trees, but they decide to try to burn down the trees in order to reach the adventurers.

Everything seems about to be lost, Gandalf is about to throw himself on to the goblins, which would have killed him, as he kills them. Instead, the Lord of the Eagles flies down and swoops up Gandalf. Then the Lord of the Eagles guards swoop down and rescue the dwarves and Bilbo, who is hanging on to the legs of Dori. They fly them to their nest, called an eyrie, and then take them to the Great Shelf, which is where Gandalf and the Lord of the Eagles are discussing plans to help the party. They agree to take them as far as they comfortably can, to help them on their trip.

The eagles land them on the rock called Carrock, which leads them to a home of someone Gandalf knows. He will not tell them his acquaintance's name, but does tell them he has a bad temper, is large, and is a skin-changer. This means he can change his form from human to animal; he likes to change to a black bear. Gandalf also explains they must be very polite to him and arrive in twos at his door. The dwarves and Bilbo are very confused and curious about this stranger.

Soon they find themselves just outside the person's living area, this time Gandalf takes Bilbo with him to find the gate which leads to the person's house. They find him, but he has never heard of Gandalf or Bilbo Baggins, so Gandalf talks about a cousin of his, who the man knows. He then allows Gandalf and Bilbo to explain why they are on his property and what they want from him. Gandalf explains he and Bilbo have been attacked by goblins and have become lost and are in need of food.

The man's name is Beorn and though he doesn't usually like strangers, he is intrigued by the tale Gandalf tells him of the trouble they had with the goblins and Wargs. As he tells the story, Gandalf has the dwarves appear in twos at Beorn's door, which has the effect of keeping Beorn's interest and not overwhelming him all at once with 15 visitors. He declares he will allow them to stay the night and also feed them supper. He warns them not to step outside after dark, because it is very dangerous.

The next day, both Beorn and Gandalf are missing for the entire day. Gandalf finally returns the to tell them he has been tracking bear tracks, which led towards the goblins' home. Beorn returns the next morning with the news that the goblins and Wargs are hunting the dwarves, Bilbo, and Gandalf for their actions against them. He vows to help them in any way he can. He allows them to rest, provides them with food, and ponies and gives them advice on the best way to travel though the Mirkwood. The Mirkwood is the greatest forest of the Northern world and is very dangerous to cross.

Beorn has been tracking the party in the form of a bear as they traveled towards the gate of the Mirkwood. Once they reach it then they have to release their ponies and travel by foot through the Mirkwood.

Also, Gandalf is leaving the dwarves and Bilbo at the gate to Mirkwood, to attend to some business in the South. The dwarves and Bilbo are sad he is leaving them and afraid to be on their own, for the first time in this adventure. Gandalf leaves them, warning them to remember to stay on the path through the Mirkwood.

Bilbo, the dwarves, and Gandalf are almost killed by the goblins and Wargs, but the Lord of the Eagles and his guards help them escape. They are also helped by Beorn to cross to the Mirkwood and given provisions and directions to make their crossing easier. They must now learn to survive on their own without Gandalf. They will need to summon up their courage to make this crossing. They need to learn to rely on each other, to be successful in their quest.