They disguise themselves for the carnival's House of Freaks, using Count Olaf's disguises stored in the trunk of his car. Sunny Baudelaire wraps herself in a beard to disguise herself as Chabo the Wolf Baby. Violet and Klaus Baudelaire squeeze into one large shirt as a two headed person with highly differing voices, 'Beverly' and 'Elliot'. Madame Lulu hires the children after they do an act for her. She leads them to a caravan with three people inside. Colette is a contortionist, Hugo is a hunchback, and Kevin, who is ambidextrous.
The next morning they discover that that when Olaf asked the crystal ball Is one Baudelaire parent still alive?, it answered Yes, they are up in the Mortmain Mountains. The freaks get ready for the show and walk into a tent with a few people in it. After some rude acts, they return to the caravan and sit on the steps. Olaf arrives with a pack of lions for a lion's pit will be made. They will then select a freak and push them into the pit.
The orphans go back to Lulu's tent to consult her, and discover the V.F.D. symbol on the outside, a secret archival library under the table hidden by a tablecloth and the mysterious effects behind her fortune telling are no more than ropes and pulleys. They are discovered when Lulu comes in. Lulu breaks down and throws off her disguise, revealing herself as a woman named Olivia who just wants to give people what they want. She is a member of V.F.D. and tells them about the V.F.D. disguise kit and a schism which happened in the V.F.D. Violet notes that the crystal ball special effects involve a fan belt that could be used to power the cars from the nearby roller coaster, which the orphans and Olivia could use to escape to the Mortmain Mountains.
Debate ensues on who will be thrown judged by their freakishness. That night Esmé Squalor comes to their caravan in an I Love Freaks outfit. She tells them that if they are picked to be thrown into the pit of ravenous lions the next day, they should throw Madame Lulu in instead. If they do that they will be part of Count Olaf's theater troupe. The next morning the orphans go and get the coaster carts ready.
The audience which comes to see one of the carnival employees tossed into the lion pit is unpleasant. One woman is shown to be the reporter who broke the story that the Baudelaires murdered Count Omar. Olaf dramatically unfolds a paper that will show who is to be devoured by lions, and the orphans are picked. During the fight to determine who will push them in, and Madame Lulu along with the fanbelt and one of Olaf's associates (the long nosed man) fall in instead.
The orphans find a map of the mountains with a coffee stain on it. Olaf states the stain indicates V.F.D.'s secret base in the Mortmain Mountains, as the V.F.D. often used coffee stains to indicate secret locations to other members. The orphans, Olaf, and the carnival freaks jump in Olaf's car and caravan. Violet and Klaus are in the caravan and Sunny is in the car. Olaf then reveals that Lulu told him that they are the Baudelaires, and the newly recruited freaks cut the caravan off the car to their seemingly imminent deaths.