The narrator finds a full-time job, and sees less of Holly. While they are sometimes able to share an early-morning coffee on his return from work, Holly is frequently out, sometimes with Rusty Trawler and often with Rusty, Mag and Jose. The narrator notes that among such company, the reserved and respectable Jose looks out of place.
One afternoon while waiting for a bus, the narrator notices Holly entering the public library. Confused by this seemingly uncharacteristic interest, the narrator follows her in and observes Holly secretly from a nearby reading table. As he watches her take notes, the narrator is reminded of a classmate he had while in school, Mildred Grossman. While Mildred was a humorless, practical introvert, and Holly a lighthearted, irrational extrovert, the narrator considers them "Siamese twins": while most personalities are malleable and ever-shifting, Mildred and Holly "had been given their character too soon", and, as a result, would never change. Like caricatures, both Mildred and Holly were disproportionate embodiments of distinct "types": Mildred the realist, and Holly the romantic. After Holly leaves, the narrator walks over to her reading table and sees that she had been consulting travel and political books about Brazil.
On Christmas Eve, the narrator attends a party given by Holly and Mag. He helps them trim their enormous tree with baubles, tinsel, and stolen balloons. Holly tells the narrator that there is a present for him in the bedroom; on her bed, he finds the birdcage he had admired, decorated with a red ribbon. He is surprised by the amount of money she has spent on it - three hundred and fifty dollars - and she shrugs, explaining that it just took "a few extra trips to the powder-room." Holly makes him promise that he'll "never put a living thing" in the cage, and he agrees. The narrator hands Holly her present, a St. Christopher's medal from Tiffany's.
The narrator, speaking in the present, informs the reader that while Holly has almost certainly lost the medal, he still owns the birdcage, and has traveled with it across the U.S., North Africa, Europe, and the Caribbean. He recalls that the birdcage was at the center of a big argument he and Holly had in the February of the same year.
After the Christmas party, Holly, Rusty, Mag, and Jose take a winter trip to Key West. After she returns, newly tanned and blonde, Holly explains to the narrator that, soon after the group arrived, Rusty had gotten into an altercation with a group of sailors and was seriously injured, while Mag had to be hospitalized for first-degree sunburn. Jose and Holly had left Rusty and Mag in the hospital and went alone to Havana, where Holly became taken with their half-black, half-Chinese guide until it was revealed he was a star of a "blue movie" (pornography). When Jose and Holly returned to Key West, Mag and Rusty accused the pair of having slept together while in Havana, which caused particular tension between Holly and Mag.
Holly tells the narrator that she convinced Mag that she hadn't slept with Jose by confessing that she was "a dyke". Mag had believed her, and, to avoid sharing the same bed as a lesbian, was now sleeping on an army cot into the living room of Holly's apartment. The narrator gives Holly a backrub while she tells him that she passed along his short story, published in the university review, to O.J. Berman. She says that while Berman had been impressed with his writing, he thought the narrator was on the wrong track. "Negroes and children: who cares?"
The narrator dismisses Berman's criticism, but Holly admits that she thinks that the narrator's story "doesn't mean anything." She claims that Wuthering Heights was more meaningful. As the narrator and Holly argue, he realizes that she was talking about the movie version of Bronte's novel. Aware of his condescending attitude, Holly claims that if the narrator is to claim superiority, he should offer proof. When the narrator claims that he doesn't compare himself to Holly or Berman because they "want different things", Holly chides him for his lack of commercial ambition. "You'd better make money," she warns.
The narrator apologizes, but Holly continues to goad him. Finally, he points out the degrading way in which she earns her money, claiming that "Rusty Trawler is too hard a way of earning it." Holly tells the narrator to leave her apartment.
The seventh section of "Breakfast At Tiffany's" extends the characterization of the narrator as an outside observer explored in the previous sections. The narrator spies on Holly, this time as she studies in the public library. Throughout the novella, the narrator vacillates between two distinct impulses towards Holly: friendship and voyeurism. In section 7, he explains that he finds a full-time job, seeing less of Holly; consequently, he finds himself again in the position of passive observer of her life.
Through the narrator's observations, the reader learns more about Holly's deceptive tendencies. After Holly leaves the library, the narrator discovers that she has been consulting travel and political guides about Brazil, the country Mag is supposedly moving to after marrying the Brazilian politician Jose. Holly's interest in these topics indicates not only her own interest in Jose, and thus her intended betrayal of Mag, but her ability to transform her basic attitude and identity as circumstance dictates. Holly was once credible as a jockey's girlfriend, a Hollywood wannabe, and now, a New York socialite. Her visit to the library indicates that she plans to transform yet again, this time into the cultured companion of a Brazilian head of state.
As the narrator observes Holly in the library, he is reminded of another girl he once knew: the practical, introverted Mildred Grossman. He conveys that the two women were opposites: Mildred a "top-heavy realist" and Holly a "lopsided romantic". Through his comparison, the narrator reveals his account of human personality. While he believes that most people are malleable, their nature fluid and ever shifting, both Mildred and Holly were unchanging, their distinct personalities formed early and thus becoming unalterable. This is a provocative observation when we consider that Holly's identity is pathologically unstable and almost completely fraudulent. By suggesting that Holly's basic character was complete and unchanging, the narrator illuminates Berman's claim that Holly is a "real phony". Holly's fraudulence and instability is perhaps not a cover, but her true nature; her "phoniness" is a very real, essential part of her basic character.
Holly's account of her group trip to Key West further enhances our understanding of the fraudulent relationship between Holly and Mag. After Holly and Jose leave Mag and Rusty in the Key West hospital to travel alone to Cuba, Holly responds to Mag's accusations by lying, telling Mag that she was a lesbian. This lie is intended partly to defend Holly against Mag's wrath, and partly for the joy of the lie itself. That Holly responds to the narrator's shock at this deception with such flippancy - "I'm always top banana in the shock department...darling, rub some oil on my back" - indicates her lack of guilt over both the affair and her betrayal of Mag.
The argument between Holly and the narrator returns the novella to its earlier examination of the definition of art. Holly and Berman, both of whom recognize the narrator's talent, urge him to abandon his descriptive prose in favor of a style that will earn him money. The narrator, feeling intellectually and aesthetically superior to both Holly and Berman, feels that such a move would compromise the integrity of his art. At the crux of this argument are two competing definitions of art: art as a commodity (Holly and Berman), and art as a critique of society that is distinct from mass culture (the narrator). From Holly's description of the narrator's story ("Negros and children"; "description") the reader can assume that the narrator's writing, like Capote's, is what critics now categorize as "social realism": descriptive, objective prose that explores the social and psychological realities of marginalized subjects. While such writing was critically important, it was not often - with the exception of Capote - commercially successful. The narrator's disgust at Holly's plea for him to "make money" is thus an expression of his larger dilemma as an artist whose position in mass-consumer society is precarious. Holly, a commodity herself, represents the pressure of commercial society upon artists to abandon their ideological and aesthetic ideals in favor of economic profit.