Once again, time passes while Bearslayer studies at the Castle of Burtnieks. One night he notices in the fortress's undercroft a trapdoor, left half-open to reveal a stone staircase leading below. He goes down and follows a tunnel until he enters a large chamber that he judges to be beneath the centre of the lake. He is in the Sunken Castle that Laimdota had told him about. He discovers Laimdota reading an ancient book. She explains to him that if a mortal remains in the Sunken Castle overnight and survives until morning, the castle will rise once more into the light of day. Bearslayer resolves to carry out this heroic task and Laimdota leaves him. Midnight passes and the Sunken Castle grows cold. Bearslayer lights a fire from broken wood lying around. Suddenly seven evil spirits enter the room carrying an open coffin, in which an old man with huge sharp teeth and long nails is lying. He begins to groan horribly and complain that he is cold. Bearslayer cannot bear the sound and hauls the man from the coffin to the fire, but the old man tries to bite off Bearslayer's ears, knowing that without them Bearslayer is weak. Bearslayer fights back and holds the old man in the fire, saying that he will only let him go if the Sunken Castle is raised to the surface. At this, a whirlwind springs up and the seven evil spirits return, led by Spidala. They attack Bearslayer and he is about to be defeated when he remembers the mirror that Staburadze gave him. He pulls it out and holds it in Spidala's face. A howling fills the air and all the evil spirits turn to dust and are whirled round the room in the whirlwind. The spirit of Viduveds, a wise man of ancient times, appears in human form and greets Bearslayer, saying that the young hero will save the Latvian people. Viduveds's handmaidens make a bed for Bearslayer, and he falls into a deep sleep. Next morning the people are amazed to see a castle standing on an island in the middle of the lake. Laimdota tells Burtnieks that Bearslayer has spent the night in the castle, and the old man realizes at once that Bearslayer has broken the magic spell and saved the Sunken Castle. Laimdota and Burtnieks enter the castle and wake Bearslayer. He claims Laimdota as his bride, and Burtnieks gives his blessing, saying that the union of the two clans (Burtnieks and Lielvarde) will save the Latvians. One evening, later, Laimdota reads to Bearslayer from the ancient books found in the Sunken Castle. She reads how the ancient Latvians were led to the Baltic Sea from a land far to the east by Perkons. With the favour of the gods, they settled in a valley, built a castle, and established a golden age on Earth.