Upstairs in the bedroom toward the end of the party, Eve manipulates her way into getting an audition as Margo's new understudy (her current one was pregnant) with the help of the playwright's wife Karen. Even though there is never any need for an understudy, because Margo never misses a performance ("Margo just doesn't miss performances. If she can walk, crawl, or roll, she plays...Margo must go on") Karen promises to put in a good word for her with producer Max Fabian - without Margo's knowledge.

Birdie enters the bedroom and describes the bed full of furs belonging to the guests at the party: "The bed looks like a dead animal act." Birdie takes an expensive sable coat from the bed down the stairs to its departing owner, a Hollywood movie star ("she's on her way with half the men in the joint").

On the stairs, De Witt is holding forth to Bill, Miss Casswell, Max, and Eve:

Every now and then some elder statesman of the theater or cinema assures the public that actors and actresses are just plain folks. Ignoring the fact that their greatest attraction to the public is their complete lack of resemblance to normal human beings.

Distracted by the sable coat passing by in Birdie's arms, Miss Casswell describes what she would sacrifice herself for:

Miss Casswell: Now there's something a girl could make sacrifices for.
Bill: And probably has.
Miss Casswell: Sable.
Max Fabian: Sable? Did she say sable or Gable?
Miss Casswell: Either one.

De Witt continues to talk about theater matters - "we're a breed apart from the rest of humanity, we theatre folk. We are the original displaced personalities." Miss Casswell interrupts him:

Miss Casswell: Oh, waiter!
De Witt: That isn't a waiter, my dear. That's a butler.
Miss Casswell: Well, I can't yell, 'Oh, butler!' can I? Maybe somebody's name is Butler.
De Witt: You have a point. An idiotic one, but a point.
Miss Casswell: I don't want to make trouble. All I want is a drink.
Max: Leave it to me. I'll get you one.
Miss Casswell: (smiling) Thank you, Mr. Fabian.
De Witt: (congratulatory) Well done. I can see your career rising in the east like the sun.

Bill describes what it takes to be a good actor or actress in the theater - hard work, sweat, application of craftsmanship, and sheer desire:

Bill: To be a good actor or actress or anything else in the theatre means wanting to be that more than anything else in the world.
Eve (softly): Yes, yes it does.
Bill: It means concentration of desire or ambition, and sacrifice such as no other profession demands. And I'll agree that the man or woman who accepts those terms can't be ordinary, can't be just someone. To give so much for almost always so little.

Playing the wide-eyed innocent, Eve explains to them her insatiable love of acting and applause, and why she would be grateful for any part in the theater:

So little. So little, did you say? Why, if there's nothing else, there's applause. I've listened backstage to people applaud. It's like, like waves of love coming over the footlights and wrapping you up. Imagine to know, every night, that different hundreds of people love you. They smile. Their eyes shine. You've pleased them. They want you. You belong. Just that alone is worth anything.

As she is beginning to get wise to Eve, Margo becomes more and more angry, paranoid, competitive and jealous of Eve and her duplicity. Margo's frequent barbed insults, invectives and outbursts in front of all her guests are misinterpreted by everyone as part of her prima donna role:

Margo: (to Eve) And please stop acting as if I were the Queen-Mother.
Eve: (apologetic) I'm sorry, I didn't...
Bill: Outside of a beehive, Margo, your behavior would hardly be considered either queenly or motherly.
Margo: You're in a beehive, pal. Didn't you know? We're all busy little bees, full of stings, making honey, day and night. (To Eve) Aren't we, honey?
Karen: Margo, really.
Margo (to Karen): Please don't play governess, Karen. I haven't your unyielding good taste. I wish I could have gone to Radcliffe too, but father wouldn't hear of it. He needed help behind the notions counter. I'm being rude now, aren't I? Or should I say, ain't I?
De Witt: (he compliments her) You're maudlin and full of self-pity. You're magnificent.
Lloyd: How about calling it a night?
Margo: And you pose as a playwright, a situation pregnant with possibilities and all you can think of is everybody go to sleep.

In front of onlookers assembled on the stairs, the party is about to be broken up - Margo argues with her own boyfriend:

This is my house, not a theatre. In my house, you're a guest, not a director.

Karen is thoroughly upset with Margo's insolent behavior: "Then stop being a star. And stop treating your guests as your supporting cast...It's about time Margo realized that what's attractive on stage need not necessarily be attractive off." Margo leaves their company to go upstairs to bed, thrusting parting words at Bill on the stairs: "You be host. It's your party. Happy Birthday, Welcome Home. And we who are about to die salute you." De Witt is sorry to leave the drama prematurely: "Too bad, we're gonna miss the third act. They're gonna play it off stage."

Gradually, the film audience begins to see how the conniving Eve has played tricks on her new-found 'friends.' Eve feigns upset, and wonders what she has done to offend Margo and cause such hostility ("there must be some reason, something I've done without knowing"). Karen reassures the devastated young woman: "The reason is Margo, and don't try to figure it out. Einstein couldn't." As she leaves, Eve insistently reminds Karen about her promise to aid her in becoming Margo's replacement understudy.

A few weeks later, Margo arrives in the theatre lobby [next door to another theatre playing The Devil's Disciple, a not-too-obvious reference to Eve herself], too late at 4 pm. to witness Miss Casswell's audition for Aged in Wood that she had promised Max she would attend. She learns from De Witt that following the audition, the young nervous starlet was "violently ill to her tummy" in the ladies lounge. Then, Margo is stunned that Eve - as her "new and unpregnant understudy" - read in her place during Miss Casswell's audition. De Witt then speaks reverently, after years of experience, to Margo about the truly great thespians from the past and present, and one beautiful actress that will be among them in the future:

...I have lived in the theater as a Trappist monk lives in his faith. I have no other world; no other life - and once in a great while, I experience that moment of revelation for which all true believers wait and pray. You were one. Jeanne Eagels another, Paula Wessely, Hayes. There are others, three or four. Eve Harrington will be among them.

De Witt takes perverse pleasure in telling Margo his self-serving opinion of Eve's understudy performance - one that mesmerized the producer, director, and playwright:

De Witt: It wasn't a reading. It was a performance. Brilliant, vivid, something made of music and fire.
Margo: How nice.
De Witt: In time, she'll be what you are.
Margo: A mass of music and fire.

Lloyd reacted with great enthusiasm to the audition and especially to Eve's reading - "Lloyd was beside himself. He listened to his play as if it had been written by someone else, he said. It sounded so fresh, so new, so full of meaning...She (Eve) read his lines exactly as he had written them."

Miss Casswell emerges wobbly and weak-kneed from the ladies lounge in the lobby, telling De Witt that she feels like she just "swam the English Channel" after an awful audition:

Miss Casswell: Now what?
De Witt: Your next move, it seems to me, should be towards television.
Miss Casswell: Tell me this. Do they have auditions for television?
De Witt: That's, uh, all television is, my dear. Nothing but auditions.

Margo storms into the theatre - she is furious when she finds out that during the audition, Eve "read with Miss Casswell" as Margo's understudy since the star was late. And then she is told that Eve has been her understudy for over a week! The young actress had reluctantly accepted the understudy role as part of her overall calculated plan. According to playwright Lloyd, Eve "was a revelation" in the audition in the role of a twenty-four year old character - the potential displacement of her character by the younger actress (closer to the age of the stage character) incenses Margo and she threatens to abandon the performance in a "bar-room brawl" combative atmosphere. As he storms out of the theatre, Lloyd attempts to put temperamental actress Margo in her place by comparing her to a musical instrument for whom he has written a composition:

Margo: All playwrights should be dead for three hundred years!
Lloyd: That would solve none of their problems, because actresses never die. The stars never die and never change.
Margo: You may change this star any time you want for a new and fresh and exciting one, fully equipped with fire and music. Anytime you want, starting with tonight's performance....
Lloyd: I shall never understand the weird process by which a body with a voice suddenly fancies itself as a mind. Just when exactly does an actress decide they're her words she's saying and her thoughts she's expressing?
Margo: Usually at the point when she has to rewrite and rethink them to keep the audience from leaving the theatre.
Lloyd: It's about time the piano realized it has not written the concerto!

Margo turns and speaks to Bill, her director and fiancee, who is lying on a bed on the stage set and smoking a cigarette: "And you, I take it, are the Paderewski who plays his concerto on me, the piano?" Margo refers to Eve as "Princess Fire and Music," and refers to herself as "nothing but a body with a voice, no mind." She also rails at him - she refuses to calm down and heavy-handedly berates him for scheming behind her back:

Bill: The gong rang, the fight's over. Calm down.
Margo: I will not calm down.
Bill: Don't calm down.
Margo: You're being terribly tolerant, aren't you?
Bill: I'm trying terribly hard.
Margo: But you needn't be. I will not be tolerated and I will not be plotted against.
Bill: Here we go.
Margo: Such nonsense. What do you all take me for - Little Nell from the country? Been my understudy for over a week without my knowing it, carefully hidden no doubt.

Bill strikes back at the unglued Margo for her insane jealousy and frequent tantrums:

I am sick and tired of these paranoiac outbursts...For the last time, I'll tell it to you. You've got to stop hurting yourself and me and the two of us by these paranoiac tantrums...You're a beautiful and an intelligent woman, and a great actress. A great actress at the peak of her career. You have every reason for happiness...but due to some strange, uncontrollable, unconscious drive, you permit the slightest action of...a kid like Eve to turn you into an hysterical, screaming harpy. Now, once and for all, stop it!

Margo calms down enough to admit in a dignified way: "I'll admit I may have seen better days, but I'm still not to be had for the price of a cocktail, like a salted peanut." Bill gives Margo an ultimatum - her nonsensical outbursts and jealousy of Eve must cease and they must find peace. She remains suspicious of his motives, thinking that he is leaving to find Eve. So he walks out on her and the couple break up temporarily. The camera fades to black as she is left alone on the stage.

Karen aids Eve's calculated rise and conquest of the stage a second time with a "perfectly harmless joke," to teach Margo a lesson in humility after hearing from Lloyd about her rudeness: "She can play Peck's Bad Boy all she wants and who's to stop her? Who's to give her that boot in the rear she needs and deserves?" Now sympathizing with Eve, Karen plots to create the circumstances for Margo to be stranded out of town on a "cozy weekend" night:

(In voice-over) Newton, they say, thought of gravity by getting hit on the head by an apple. And the man who invented the steam engine - he was watching a tea kettle. Not me. My big idea came to me just sitting on a couch. That boot in the rear to Margo. Heaven knows she had one coming. From me, from Lloyd, from Eve, Bill, Max, and so on. We'd all felt those size 5's of hers often enough. But how? The answer was buzzing around me like a fly. I had it. But I let it go. Screaming and calling names is one thing, but this could mean...Why not? Why, I said to myself, not? It would all seem perfectly legitimate. And there were only two people in the world who would know. Also, the boot would land where it would do the most good for all concerned. And after all, it was no more than a perfectly harmless joke that Margo herself would be the first to enjoy. And no reason why she shouldn't be told about it - in time.

While returning from a country place, Margo is unable to catch her train to get to the New York stage on time for her Monday evening performance. This allows Eve to go on stage in Margo's place for the first time. Margo and Karen wait in the car that has conveniently run out of gas while Lloyd walks ahead. Margo has a moment of self-reflection about her real persona, full of weaknesses and vain insecurities. She really has no idea who she is beyond her public persona in the cannibalistic occupation of acting:

Margo: So many people know me. I wish I did. I wish someone would tell me about me.
Karen: You're Margo, just Margo.
Margo: And what is that besides something spelled out in lightbulbs, I mean, besides something called a temperament which consists mostly of swooping about on a broomstick and screaming at the top of my voice. Infants behave the way I do, you know. They carry on and misbehave. They'd get drunk if they knew how, when they can't have what they want. When they feel unwanted or insecure or unloved.

Letting her "hair down," she also honestly describes how she has been hardened and has paid the price in human relationships, especially with Bill, by her successful exhibitionist career and her worries about aging:

Margo: Bill's in love with Margo Channing. He's fought with her, worked with her, and loved her. But ten years from now, Margo Channing will have ceased to exist. And what's left will be - what?
Karen: Margo, Bill is all of eight years younger than you.
Margo: Those years stretch as the years go on. I've seen it happen too often.
Karen: Not to you, not to Bill.
Margo: Isn't that what they always say?...About Eve, I've acted pretty disgracefully toward her too.
Karen: Well,...
Margo: Don't fumble for excuses, not here and now with my hair down. At best, let's say I've been oversensitive to her...to the fact that she's so young, so feminine and so helpless, too so many things I want to be for Bill. Funny business, a woman's career. The things you drop on your way up the ladder so you can move faster. You forget you'll need them again when you get back to being a woman. There's one career all females have in common - whether we like it or not: being a woman. Sooner or later, we've got to work at it, no matter how many other careers we've had or wanted. And, in the last analysis, nothing is any good unless you can look up just before dinner or turn around in bed - and there he is. Without that, you're not a woman. You're something with a French provincial office or a - a book full of clippings, but you're not a woman. Slow curtain. The End.

Eve performs as the understudy in Margo's absence. Knowing ahead of time that Margo would not be there to perform - even before the car ran out of fuel - Eve calculatedly invited all the top New York theater critics to her show that afternoon. According to De Witt, in voice-over:

Eve, of course, was superb. Many of the audience understandably preferred to return another time to see Margo. But those who remained cheered loudly, lustily, and long for Eve. How thoughtful of her to call and invite me that afternoon. And what a happy coincidence that several representatives of other newspapers happened to be present. All of us invited that afternoon to attend an understudy's performance about which the management knew nothing until they were forced to ring up the curtain at nine o'clock. Coincidence.