Holmes decodes a warning from Porlock, an informant against arch-criminal Moriarty, for "Douglas" resident five years at "Birlstone".

Scotland Yard's MacDonald asks them to investigate a corpse with the same look and circle-in-triangle brand on the forearm as Birlstone owner Douglas. The head was blown off by an American-style sawed-off shotgun. Apparently, an intruder dropped a card with VV341, and left across a shallow moat. Watson observes the bereaved English wife and best male friend in unusually good spirits.

When Holmes pretends the moat will be drained, the conspirators retrieve a missing dumb-bell weighting down the visitor's clothes beneath the water. Douglas comes from hiding, to explain he killed the assassin Baldwin in self-defence; the plan was to save him from more attacks by criminal survivors of Vermissa Valley. He hands Dr. Watson the following account.

Young McMurdo gains reputation as tough counterfeiter, Freemen Lodge member fleeing murder charges in Chicago. In the Vermissa coal mine area, McGinty rules Scowrers branded by a circle in square, the local Lodge 341 who extort, murder, and exchange vicious deeds with nearby Lodges. Pretty Ettie prefers McMurdo to nasty Baldwin, and wants to flee, but will wait some months. When word comes that Pinkerton sent Edwards, McMurdo gathers ringleaders in one room, and springs his trap on them, surrounded by the law. Although the worst were hanged, after ten years, villains were freed, and chased McMurdo-Edwards-Douglas, despite changes of name, location, and wife. He married Ettie, then she died in California, where he made a fortune.

The Valley of Fear, notable for Professor Moriarty's involvement, is set before "The Final Problem", the short story in which Moriarty was introduced. This introduces a logical difficulty, as in "The Final Problem" Dr. Watson has never heard of Moriarty, whereas by the end of The Valley Of Fear he is, or should be, familiar with his name and character. The "Moriarty" element in the story is tied into the fate of the informer in the story. It ties the Molly Maguire background to another event of that period: the murder of James Carey, an informer who was shot on board a ship off the coast of Natal, South Africa in 1883 by Patrick O'Donnell, an Irish republican who had relatives in the Mollies and briefly visited the Pennsylvania coal mining district, supposedly looking for the suspected informer among them.