With a search warrant the two force their way into the showman’s wagon, and demand that he end the trance of his medium. However, at this very moment they are called away to the police station to attend the examination of a criminal who has been caught in the act of killing a woman, and who now frantically denies that he is the pursued serial murderer. Francis continues spying on Caligari, and, after nightfall, secretly  peers through a window of the wagon. But while he imagines he sees Cesare lying in his box, Cesare in reality breaks into Jane’s bedroom, lifts a dagger to pierce the sleeping girl, gazes at her, puts the dagger away and flees, with the screaming Jane in his arms, over roofs and roads.
Chased by her father, he drops the girl, who is then escorted home, whereas the lonely kidnaper dies of exhaustion. As Jane, in flagrant contradiction of what Francis believes to be the truth, insists on having recognized Cesare, Francis approaches Caligari a second time to solve the torturing riddle. The two policemen in his company seize the coffinlike box, and Francis draws out of it a dummy representing the somnambulist.
Profiting by the investigators’ carelessness, Caligari himself manages to escape. He seeks shelter in a lunatic asylum. The student follows him, calls on the director of the asylum to inquire about the fugitive, and recoils horror-struck: the director and Caligari are one and the same person. The following night — the director has fallen asleep — Francis and three members of the medical staff whom he has initiated into the case search the director’s office and discover material fully establishing the guilt of this authority in psychiatric matters.
Among a pile of books they find an old volume about a showman named Caligari who, in the eighteenth century, traveled through North Italy, hypnotized his medium Cesare into murdering sundry people, and, during Cesare’s absence, substituted a wax figure to deceive the police. The main exhibit is the director’s clinical records; they evidence that he desired to verify the account of Caligari’s hyphotic faculties, that his desire grew into an obsession, and that, when a somnambulist was entrusted to his care, he could not resist the temptation of repeating with him those terrible games. He had adopted the identity of Caligari. To make him admit his crimes, Francis confronts the director with the corpse of his tool, the somnambulist. No sooner does the monster realize Cesare is dead than he begins to rave. Trained attendants put him into a strait jacket.
This horror tale in the spirit of E. T. A. Hoffmann was an outspoken revolutionary story. In it, as Janowitz indicates, he and Carl Mayer half-intentionally stigmatized the omnipotence of a state authority manifesting itself in universal conscription and declarations of war. The German war government seemed to the authors the prototype of such voracious authority.
Subjects of the Austro-Hungarian monarchy, they were in a better position than most citizens  of the Reich to penetrate the fatal tendencies inherent in the German system. The character of Caligari embodies these tendencies; he stands for an unlimited authority that idolizes power as such, and, to satisfy its lust for domination, ruthlessly violates all human rights and values. Functioning as a mere instrument, Cesare is not so much a guilty murderer as Caligari’s innocent victim. This is how the authors themselves understood him. According to the pacifist-minded Janowitz, they had created Cesare with the dim design of portraying the common man who, under the pressure of compulsory military service, is drilled to kill and to be killed.