Crane begins his investigation, remaining skeptical about the paranormal elements until he actually encounters the Headless Horseman, who kills the town magistrate, Samuel Phillipse.
Boarding at the home of the town's richest family, the Van Tassels, Crane is taken with their daughter, Katrina.
Katrina, finding out that Crane suspects her father, burns all the evidence that Crane has accumulated. The Horseman seemingly kills Katrina's stepmother, Lady Van Tassel, and heads off to the church to get Baltus.
Crane realizes the Horseman can't enter the church due to it being holy ground.
Crane and Young Masbath, the son of one of the Horseman's victims, go to the cave dwelling of a reclusive witch.