Mr. Duncan, an old acquaintance of Dr. Gordon, asks for a letter of recommendation and is refused. Duncan vows revenge and hypnotizes Jenny to fear Black Beauty. Everyone is mystified until Albert starts to learn the truth.

Ned returns to the Gordons, having escaped from his abduction, but the constable doubts his story. Simey sells Beauty to Waggs but he escapes, attempting to return home. Beauty arrives at the Jones farm and is adopted by the young Rosie, who renames the horse Mike. Kevin, Ned and Jenny keep hoping for Black Beauty's return.