Elena begins high school. She is intimidated by the fact that she knows very few students, and no girls. Gigliola has not been able to advance, and has begun working instead. Elena is also alienated by Lila's newfound fascination with politics and justice, as well as her string of suitors. However, Elena's confidence is buoyed by strong academic performance, which wins her the respect of her high school peers. She also finally accepts Gino's offer to be his girlfriend. Nonetheless, Elena's attention is caught by the fact that Nino Sarratore is attending the same high school.
Lila and Rino continue their project of developing a design for a pair of shoes, but tensions emerge: Rino is preoccupied with achieving status, wealth, and power as quickly as possible, and has little patience for Lila's genuine desire to craft something well-made. Rino has also developed a rivalry with the Solara brothers. This rivalry threatens to come to a head as New Year's Eve approaches, with Rino vowing to set off more fireworks than the Solaras. Then, unexpectedly, Stefano invites Lila and Elena to come to his home for New Year's Eve 1958, going so far as to extend the invitation to Carmen and Pasquale Peluso (the children of the man accused of murdering his father) as well.
The New Year's celebration ends up being a large one, with several families gathered. The fireworks display starts in merriment, but quickly becomes a competition between the men assembled at the party and the nearby gathering at the Solara household. Even that competition is at first friendly, but descends into chaos and violence, culminating in the Solaras firing guns. While these events take place, Lila is overcome by a strange sensation. Much later in life, she will recount to Elena the sense of losing her connection to time and space, and refer to the experience as a sense of "dissolving margins."
For the time being however, Elena does not know why Lila begins behaving strangely after the New Year's party. She does notice that Lila seems less motivated and less interested in the shoe-making project, although Lila remains obsessed with earning money. Lila's lack of enthusiasm for the shoe design project begins to frustrate Rino, who behaves even more erratically. On the eve of the Epiphany, when gifts are traditionally exchanged, Rino presents the newly designed shoes to his father, even though Lila has told him that they are not ready. Fernando reacts with anger, attacking his son and calling him a fool. After the violent quarrel, Lila confines herself to more domestic tasks around the house, and does not go to the shoe store anymore.
This section reveals vulnerabilities for Lila. The episode of dissolving margins signals that while she usually seems in control of almost any situation, Lila can actually be significantly overwhelmed and even powerless. This lack of power is even more strikingly revealed in what is apparently the abrupt collapse of the shoe design plan. Because of Rino's impatience and her father's stubbornness, it seems like Lila's dreams will never come to fruition. She seems almost to accept her fate, a stark juxtaposition with her previously defiant spirit.