The narrator of the story now pauses to discuss the feelings that caused him to retell Nathanael's tale to readers, saying it has been like having something extremely pressing to tell everyone but not knowing how to begin. He confesses that this is why he began with the three letters, and that his connection to the story is through friendship with Lothar. Before returning to the story, he also pauses to wax poetic about Clara's person and beauty.
Now, the story picks up with Nathanael returning home from university for a time. Nathanael is able to experience the normal pleasure of home, along with the company of Clara and Lothar, at times, but much of the time he is still consumed by the relationship of Coppola and Coppelius. He had once been a great storywriter and bonded with Clara in his youth by telling her these stories, but he now begins writing and reciting for her long pieces full of "dismal, obscure, tedious mysticism." He writes one such piece, a poem in which Coppelius destroys his and Clara's love, reaching in and tearing out of their lives anything pleasurable, causing Clara's eyes to fall out and burn Nathanael.
After reciting this piece for Clara, she tells him seriously to throw "the crazy senseless, insane story" away. He pushes her away violently and yells at her. Lothar finds out about this occurrence and the two men decide they must duel. However, Clara interrupts their duel, telling them to kill her before killing one another. Nathanael, feeling a rush of love for Clara, begs for forgiveness at her feet. All three young people embrace, and they spend the next few days happily and peacefully together. Then, Nathanael sets off for his final year at university.
The narrator's first-person section directly to the reader is rife with quotes about life and authorship, and calls attention to writing as a theme in the story. Nathanael himself is a storywriter, as we see later in this section, and he seems even in his letters to be bursting with the same passionate authorship as the story's narrator speaks of. This creates a parallel or double between Nathanael and the author. The reader must then grapple with how much the narrator is Hoffmann and how much he is another character written by Hoffmann to add both distance and credibility to the story.
The narrator's detail on Clara's self and beauty is interesting in two ways. First, it calls attention to the minute amount she appears and is described in the book when the narrative is focused on Nathanael, paralleling or as a result of his lack of true interest in her. Secondly, this section calls attention to the theme of beauty, and especially womanly beauty in the gaze of men, which must somehow be more than a sum of its parts. Features must not be overly, almost coldly perfect because while these women are aesthetically beautiful, evoking praise from artists, people like Clara with this kind of appearance "could be no means be called beautiful."
Nathanael and Lothar’s attempted duel highlight Hoffmann’s parody of social etiquette. Clara is the one who breaks it up, both breaking the rules of the etiquette of social dueling and fulfilling her role as hysterical woman.
In this section, a fear that underlies the entire story is more fleshed out: fervently believing something, while no one believes you. It seems that even more scary or infuriating than The Sandman himself may be Nathanael's being alone in his conviction of the events of his childhood and their perpetuation into his life at university. His friends do not trust him, and rather than losing trust in his own senses or mental capabilities, he lashes out at them. However, the fact that the words "crazy" and "insane" came out of Clara's mouth just before he pushed her away from him so forcefully as to prompt the duel should not go unnoticed - Nathanael was too struck by her comment to have not thought it of himself first.