Scene 1: Ariel and Tupolski interrogate Katurian in a police room. At first Katurian does not know why he is being questioned, and thinks he is under suspicion of running political messages against the totalitarian dictatorship through his stories. The detectives and Katurian discuss grisly stories involving children. Ariel leaves the room, and soon after Michal is heard screaming in the next room. Ariel returns, his hand covered in blood from apparently torturing Michal, and tells Katurian that Michal has just confessed to killing three children, in association with Katurian. The first two children were murdered according to the patterns of the stories "The Little Apple Men" and "The Tale of the Town on the River." Katurian denies the allegations, stating that although his stories are gruesome it is the job of a storyteller to tell a story.
Scene 2: Katurian was raised by loving parents, who encouraged him to write, and for many years he wrote very happy stories. However, at night he began to hear sounds of torture from the next room, and as a result he began to write more disturbing stories. One night, a note is slipped under the door, claiming that Katurian's brother has been tortured nightly for seven years as part of an artistic experiment to get Katurian to become a great writer. Katurian breaks down the door, only to find his parents, who were playing a trick on him, just pretending to be torturing a child. However, when Katurian returns years later, he discovers his brother's dead body hidden under the mattress, clutching the manuscript of a beautiful story, better than any of Katurian's, which Katurian burns. Katurian then interrupts his narrative to say that this ending was fabricated when he wrote the story: actually when Katurian broke down the door, he found Michal still alive. Katurian then smothered his parents with a pillow that very night in vengeance for his disabled brother and the pain they had put him through. He then took over care for his brother.
Scene 1: Katurian and Michal are together in a cell, Katurian just having been tortured. Michal reveals that he had not been tortured, but rather cooperated entirely with Ariel, even screaming when Ariel asked him to. At Michal's request, Katurian tells him the story of "The Pillowman", about a man made of pillows who convinces children to kill themselves so they can be spared a horrible future. Michal then admits to having killed the children, claiming that Katurian told him to do it by telling his stories. Michal also admits that the third child was murdered following the story "The Little Jesus", one of Katurian's most violent tales. Michal tells Katurian that he had read the written version of "The Writer and the Writer's Brother", and resented the changes from the real version, wishing instead that Katurian had written a happy ending for the two brothers. Katurian lulls Michal to sleep by telling him the story "The Little Green Pig", then smothers him to save him the pain of the execution. Katurian calls to the detectives, announcing his intention to confess to the crimes on the condition that his stories are spared.
Scene 2: Katurian tells the others the story of the Little Jesus, which is the story thought to be the source for the third murder. A young girl believes that she is the second coming of Jesus, and goes about blessing unsavory characters, to the dismay of her parents and the annoyance of others. When her parents are killed in a horrific accident, she is sent to live with abusive foster parents. Annoyed with her pretensions of divinity, the foster parents complete her performance of Jesus' life by torturing her, crucifying her, and burying her alive so that she might rise again in three days, although she never does.
Scene 1: Katurian, in the interrogation room with Ariel and Tupolski, is writing his confession, recounting the three child murders as well as the murders of Michal and his parents. Ariel explains his hatred for child-murders as he is preparing to torture Katurian with an electric battery. Katurian guesses that Ariel's hatred arises from a problematic childhood, and Tupolski confirms that Ariel was raped by his father, whom he later murdered (by smothering). Tupolski prevents Ariel from torturing Katurian in order to question him. Katurian is unable to answer to whether the third child victim was still alive when she was buried, leading the detectives to consider that she may still be alive. While Ariel runs out to find the girl, Tupolski tells Katurian his own story about a deaf boy saved from being hit by a train because of the unseen efforts of a Chinese wise man in a tower; Tupolski sees himself as the wise man, protecting the innocent without getting personally involved with them. Ariel then returns with the girl, who was found quite alive, having been cast by Michal not in "The Little Jesus" but in the benign tale "The Little Green Pig." The detectives question Katurian and discover that he is actually ignorant of the details of the child murders, because he was not involved. The detectives execute Katurian for murdering Michal and his parents. Just as Ariel is about to torch the papers, however, Katurian stands up and tells how he used his last seconds to tell himself a story about how the Pillowman came to Michal when he was young. Michal decides not to kill himself, and to suffer years of torture, so that Katurian can write his stories. This story was going to end with Ariel burning the stories, but Katurian was shot before he could finish. In actuality, Ariel decides to save the stories.