Stoneman and his protégé Silas Lynch, a mulatto exhibiting psychopathic characteristics,[17] travel to South Carolina to observe the implementation of Reconstruction policies firsthand. Black occupation soldiers are seen parading through the streets and pushing white residents aside on the sidewalks. During the election, in which Lynch is elected lieutenant governor, whites are seen being prevented from voting while blacks are observed stuffing the ballot boxes. The newly elected, mostly black members of the South Carolina legislature are shown at their desks displaying inappropriate behavior, such as one member taking off his shoe and putting his feet up on his desk, and others drinking liquor and feasting on stereotypically African American fare such as fried chicken. The legislature passes laws requiring white civilians to salute black soldiers and allowing mixed-race marriages.
Meanwhile, inspired by observing white children pretending to be ghosts to scare black children, Ben fights back by forming the Ku Klux Klan. As a result, Elsie, out of loyalty to her father, breaks off her relationship with Ben. Later, Flora Cameron goes off alone into the woods to fetch water and is followed by Gus, a freedman and soldier who is now a captain. He confronts Flora and tells her that he desires to get married. Frightened, she flees into the forest, pursued by Gus. Trapped on a precipice, Flora warns Gus she will jump if he comes any closer. When he does, she leaps to her death. Having run through the forest looking for her, Ben has seen her jump; he holds her as she dies, then carries her body back to the Cameron home. In response, the Klan hunts down Gus, tries him, finds him guilty, lynches him, and delivers his corpse to Lt. Gov. Lynch's doorstep.
Lynch then orders a crackdown on the Klan. Dr. Cameron, Ben's father, is arrested for possessing Ben's Klan costume, now considered a crime punishable by death. His faithful black servants rescue him with help from Phil Stoneman. Together they flee, along with Margaret Cameron. When their wagon breaks down, they make their way through the woods to a small hut that is home to two sympathetic former Union soldiers who agree to hide them. As an intertitle states, "The former enemies of North and South are united again in defense of their Aryan birthright."
Congressman Stoneman leaves to avoid being connected with Lt. Gov. Lynch's crackdown. Elsie, learning of Dr. Cameron's arrest, goes to Lynch to plead for his release. Lynch, who had been lusting after Elsie, tries to force her to marry him, which causes her to faint. Stoneman returns, causing Elsie to be placed in another room. At first, Stoneman is happy when Lynch tells him he wants to marry a white woman, but is then angered when Lynch tells him that it is Stoneman's daughter. Undercover Klansmen spies discover Elsie's plight when she breaks a window and cries out for help, and the Klansmen go to get help. Elsie falls unconscious again, and revives while gagged and being bound. The Klan, gathered together at full strength and with Ben leading them, rides in to regain control of the town. When news about Elsie reaches Ben, he and others go to her rescue. Elsie frees her mouth and screams for help. Lynch is captured. Victorious, the Klansmen celebrate in the streets. Meanwhile, Lynch's militia surrounds and attacks the hut where the Camerons are hiding. The Klansmen, with Ben at their head, race in to save them just in time.
The next election day, blacks find a line of mounted and armed Klansmen just outside their homes, and are intimidated into not voting. The film concludes with a double wedding as Margaret Cameron marries Phil Stoneman and Elsie Stoneman marries Ben Cameron. The masses are shown oppressed by a giant warlike figure who gradually fades away. The scene shifts to another group finding peace under the image of Jesus Christ. The penultimate title rhetorically asks: "Dare we dream of a golden day when the bestial War shall rule no more? But instead — the gentle Prince in the Hall of Brotherly Love in the City of Peace.