After identifying her husband's body at the coroner's office, Mrs. Mulwray is elusive, troubled, stuttering and frightened during questioning by Escobar about her husband's mood and his "alleged affair" with the young girl that was reported in the newspaper: "The publicity didn't make him morose or unhappy?" She strongly affirms that her husband's death wasn't a suicide, and then denies knowing the "name of the young lady in question" or her whereabouts. Mrs. Mulwray eventually confesses that they had "quarreled" over the un-named girl - although the illicit liaison came as a "complete surprise" to her. She is forced to pretend that she had indeed hired a private detective to "put an end to a ridiculous rumor that had no basis." Conveniently, Jake (who has been sitting and straining to listen in the hallway) stands and appears in the doorway - he corroborates her story and backs up her answer when she appears to need his support.

He also protects her from photographers as they leave the building - and she puts on dark glasses to hide. Always looking for publicity, he poses for them instead: "Here it is. Gittes - two t's and an e." At her car, Mrs. Mulwray thanks a stunned Jake and promises to pay him for his non-existent investigative services: "I just didn't want to explain anything. I-I send you a check?...To make it official that I've hired you."

During his lunch hour, Jake visits the mortician Morty (Charles Knapp) [an appropriate name for a mortician], an overweight, chain-smoking individual who lightheartedly jokes about Mulwray's death: "In the middle of a drought and the water commissioner drowns! Only in LA." A second drowning, that of a "local drunk" who was living in one of the downtown storm drains, is more intriguing to Jake:

Morty: Had a bureau dresser down there and everything. Yeah, he drowned too.
Gittes: Come again?
Morty: Yeah, he got drunk. Passed out in the bottom of the riverbed.
Gittes: The LA River?
Morty: Yeah, right under Hollenbeck Bridge. What's wrong with that?
Gittes: It's dry as a bone, Morty.
Morty: It's not so completely dry.
Gittes: Well, he ain't gonna exactly drown in a damp riverbed no matter how soused he is.
Morty: We got water out of him. He drowned.

At the Hollenbeck Bridge where he had once spied on Mulwray, Jake prowls around for a closer look. This time, he descends from the bridge to the river where he notices a trickle of water in the bottom of the "damp riverbed" and a bureau dresser on slightly higher, dry ground - evidence of a large quantity of water rapidly flowing through the area. The Mexican boy on horseback again appears and tells him that he would regularly report to the man with glasses (Mulwray) about the manipulation of the water supply - "when it comes."

It goes in different parts of the river. Every night a different part.

This clue is similar to the one that Hollis Mulwray was in the process of learning just before his death - portions of the city's water supply are dumped into run-off channels at night in order to claim drought and build a case for the building of the new reservoir.

From there, Jake drives to the Oak Pass Reservoir where Mulwray's corpse was found. At dusk, after scaling the locked, chain-link fence with a 'No Trespassing' sign, Gittes hears two shots of gunfire in the dark - a signal to open the water sluice. Ignorantly believing he is a shooting target, he jumps into the cement run-off channel for cover. The aqueduct storm drain immediately fills with a noisy, rushing torrent of water pouring into the opened sluice. It flushes him down the sluice and slams him into a fence-barrier and almost claims him as the next drowning victim, but he avoids death by scrambling up the metal fence in his soggy clothes - minus one "goddamn" Florsheim shoe. [Mulwray, found drowned with only one shoe, probably lost his life in a similar manner.]

A voice calls out: "Hold it there, kitty cat!" Gittes is threatened for trespassing by the previously-introduced Claude Mulvihill - who is known to be working for Yelburton, Mulwray's deputy commissioner, and a second individual. Gittes flippantly asks: "Where'd you get the midget?" referring to the second hired thug dressed in a beige suit, white shirt, spotted red and white bow-tie and Panama hat. Mulvihill punches Gittes in the stomach and then pins his arms back from behind. The maniacal, intimidating, knife-wielding hoodlum [Director Roman Polanski, whose first feature film was titled Knife in the Water (1962), in a minor cameo role] wants to scare him off the case. Jake is scolded - he gets a warning to stop snooping (nosing) around just before his nostril is viciously cut with a knife:

You're a very nosy fellow, kitty-cat, huh? You know what happens to nosy fellows? Huh, no? Want to guess? Huh, no? OK. They lose their noses. (Jake's nose gushes blood after a sharp flick of the knife.) Next time you lose the whole thing. (I) cut if off and feed it to my goldfish. Understand? Understand!?

[In reality, although Gittes admits that he 'understands,' he is thoroughly clueless at this point, and mistaken in his belief that Evelyn Mulwray may have killed her own husband.]

In the next scene in his office the next day, Jake sports a stitched nose with a criss-crossing, bloody-bandage taped down over it (a funny but symbolic and metaphoric beacon of his trespassing, castration, and snoop-for-hire enterprise into other people's business) - and an unraveling bandage for the rest of the film. Jake's colleagues suggest an approach, but Jake is aiming for higher stakes:

Walsh: So some contractor wants to build a dam and he makes a few payoffs. So what? Think you can nail Mulvihill? They'll claim you were trespassing.
Gittes: Don't want Mulvihill. I want the big boys that are making the payoffs.

A woman named Miss Ida Sessions (Diane Ladd) telephones and identifies herself as the "Mrs. Mulwray" imposter:

Well, I'm a working girl. I didn't come in to see you on my own...I was the one who pretended to be Mrs. Mulwray...I never expected anything to happen like what, what happened to Mr. Mulwray. The point is, if, if it ever comes out, I want somebody to know that I didn't know what would happen.

Although she won't divulge her address or who hired her to be an imposter, she suggests that Gittes look at the day's obituary column in the Los Angeles Post-Record - there he can find "one of those people."

In a cocktail lounge, the newspaper provides two revealing bits of news. Gittes tears out the obituary column and then glances at the front-page headlines of the paper:

Mrs. Mulwray, wearing widow's black, joins him at the table and is startled to see his bandaged, vulnerable nose. She stares at it incessantly, but doesn't ask about it. Although Jake has been generously paid as promised by mail, he feels "shortchanged...on the story." In their conversation, he describes her contradictory behaviors and accuses her of hiding something [she is, but not what he suspects]. Enigmatically, she implies that she wasn't upset about her husband's 'cheating', because she was cheating herself - at the time of her husband's death. In the background, the piano player is playing "The Way You Look Tonight":

Gittes: Something else besides the death of your husband was bothering you. You were upset, but not that upset.
Mrs. Mulwray: Mr. Gittes. Don't tell me how I feel.
Gittes: Sorry. Look. You sue me. Your husband dies. You drop the lawsuit like a hot potato all of it quicker than the wind from a duck's ass. Excuse me, uh. Then you ask me to lie to the police.
Mrs. Mulwray: It wasn't much of a lie.
Gittes: If your husband was killed, it was. This could look like you paid me off to withhold evidence.
Mrs. Mulwray: But he wasn't killed.
Gittes: Mrs. Mulwray. I think you're hiding something.
Mrs. Mulwray: Well, I suppose I am. Actually, I knew about the affair.
Gittes: How did you find out?
Mrs. Mulwray: My husband.
Gittes: He told you? (She nods yes.) And you weren't the least bit upset?
Mrs. Mulwray: I was grateful.
Gittes: Mrs. Mulwray, you'll have to explain that.
Mrs. Mulwray: Why?
Gittes: Look. I do matrimonial work. It's my métier [he pronounces it "meeteeyay"]. When a wife tells me that she's happy that her husband is cheating on her, it runs contrary to my experience.
Mrs. Mulwray: Unless what?
Gittes: She was cheating on him. Were you?
Mrs. Mulwray: I dislike the word cheat.
Gittes: Did you have affairs?
Mrs. Mulwray: Mr. Gittes.
Gittes: Did he know about it?
Mrs. Mulwray: Well, I wouldn't run home and tell him every time I went to bed with someone, if that's what you mean? Is there anything else you want to know about me?
Gittes: Where were you when your husband died?
Mrs. Mulwray: I can't tell you.
Gittes: You mean you don't know where you were?
Mrs. Mulwray: I mean I can't tell you.
Gittes: You were seeing someone too. For very long? [The film's climax ultimately answers this question in the affirmative, although in a highly unpredictable way.]
Mrs. Mulwray: (neurotically) I don't see anyone for very long, Mr. Gittes. It's difficult for me. Now, I think you know all you need know about me. I didn't want publicity. I didn't want to go into any of this then or now. Is that all?
Gittes: (After nodding yes, he remembers to ask one final question, holding up the envelope with initials "E C" for a return address.) Oh, by the way, uh, what does this C stand for?
Mrs. Mulwray (stuttering nervously, for an unknown reason): Cr...Cross.
Gittes: That's your maiden name?
Mrs. Mulwray: Yes. Why?
Gittes: No reason.
Mrs. Mulwray: You must have had a reason to ask me that.
Gittes: No. I'm just a snoop.

Before he roars away in his car after being rejected by her, he tells her his conclusions about her husband's death. He stands almost on top of her and insinuates that he still doesn't trust her because she's still "hiding something":

OK, go home, but in case you're interested, your husband was murdered. Somebody's been dumping thousands of tons of water from the city's reservoirs and we're supposed to be in the middle of a drought. He found out about it and he was killed. There's a waterlogged drunk in the morgue, involuntary manslaughter if anybody wants to take the trouble - which they don't. It seems like half the city is trying to cover it all up, which is fine by me. But Mrs. Mulwray, I goddamned near lost my nose. And I like it. I like breathing through it. And I still think that you're hiding something.

After driving away with his tires squealing, Jake revisits the office of Hollis Mulwray - now being taken over by Yelburton (workmen are preparing the door for a new sign). While waiting in the outer room during this second visit, he now notices that the walls are covered with photographs, one of which is captioned "Noah Cross, 1929," and others dated in the 1920s picturing Hollis Mulwray and Noah Cross together. (Looking at the envelope again, Gittes confirms the connection between the initials E C M (Evelyn Cross Mulwray) and Cross - but also remembers the earlier photo of Cross and Mulwray arguing together.) Casually but persistently (by smoking, tapping his cigarette butt, humming, and whistling), he asks the flummoxed secretary (Fritzi Burr):

Gittes: Noah Cross worked for the water department?
Secretary: Yes. No.
Gittes: Well, did he or didn't he?
Secretary: He owned it.

Gittes is astonished to realize that Cross "owned the entire water supply for the city." Mr. Mulwray, a co-owner/partner, "felt the public should own the water" and persuaded Cross to turn it over to the public. [Is this a possible motive for his death?] When finally admitted to Yelburton's office, Gittes cuts the ice with a joke about his nose:

Yelburton: My goodness, what happened to your nose?
Gittes: Cut myself shavin'.
Yelburton: Oh, you ought to be more careful. That must really smart.
Gittes: Only when I breathe.

Then, with disguised inferences regarding Yelburton's guilt, Gittes wonders if Yelburton hired a "chippie" (Ida Sessions) to employ him as a detective, and then possibly eliminated Mulwray because he opposed construction of a new dam and water diversion, and discovered illegalities:

Gittes: Well, let's look at it this way. Mulwray didn't want to build a dam. He had a reputation that was hard to get around. You decided to ruin it. Then he found out you were dumping water at night. Then he was, uh, drowned.
Yelburton: Mr. Gittes, that's an outrageous accusation. I don't know what you're talking about.
Gittes: Well, Whitey Mareholz over at The Times will. Dumpin' thousands of gallons of water down the toilet in the middle of a drought - that's, uh, news!

Although he appears insulted by the "outrageous accusation," Yelburton backs off and does admit (it proves to be another lie!) that some secret diversions of irrigation water are indeed being made to orange groves in the San Fernando Valley (outside the city's limits) to help the farmers:

We're not anxious for this to get around but we have been diverting a little water to irrigate orange groves in the Northwest Valley. As you know, the farmers out there have no legal right to our water. We've been trying to help some of them out. Keep them from going under. Naturally when you divert water, there's a little run-off.

When Yelburton denies knowing the "exact location" of the orange groves, Jake alludes to the fact that Yelburton does know other higher-ups who are manipulating the Los Angeles water supply:

I don't want to nail you. I want to find out who put you up to it. I'll give you a few days to think about it. Call me - I can help. Who knows? Maybe we can put the whole thing off on a few big-shots and, uh, you can stay the head of the department for the next twenty years.

Although Jake has lots of checking to do, he returns to his office where his secretary Sophie non-verbally signals that he has a client in his office. Mrs. Mulwray, still dressed in black, is waiting for him at the window when he arrives, asking: "Whoever's behind my husband's death - why have they gone to all this trouble?" Gittes simply responds: "Money. How they plan to make it out of emptying reservoirs, that I don't know." She offers him his regular salary ($35/day plus $20 for his associates, plus expenses, plus a bonus for results) plus $5,000 to "find out what happened to Hollis and who was involved." Gittes is now officially hired by Mrs. Mulwray to find her husband's murderer.

Jake also admits that he knows that her father is Noah Cross, Hollis' former business partner and father-in-law. For some unknown reason, his revelation causes her to nervously light two cigarettes simultaneously:

Tell me something, uh. Did you get married before or after Mulwray and your father sold the water department? Noah Cross is your father, isn't he?...Then you married your father's business partner...Does, uh, my talking about your father upset you?

Eventually according to Mrs. Mulwray, Hollis and Cross had a "falling out" over the ownership of the water - the conflict was partially over her, although Evelyn cannot admit the fact!

Mrs. Mulwray: My father had a falling out - finally.
Gittes: Over you, or over the Water Department? [Another hint of future revelations regarding personal and political violations.]
Mrs. Mulwray: Not over me. Why should it be over me?
Gittes: Then it was over the Water Department.
Mrs. Mulwray: Yes. Hollis felt that the water should belong to the public, and I don't think my father felt that way.

Hollis had opposed the construction of Van der Lip dam, but was "talked" into building it by Cross. The dam collapsed. It was a disastrous architectural failure, and "Hollis never forgave him for it...They never spoke from that time on." Gittes, remembering the recent photographs shown to him by his operatives of the two men fighting, asks if she is sure of her recollection as she signs the newly-drawn contract.

At the Albacore Club (flying the fish symbol and the letters AC), Jake is led through the premises and driven to a horse corral, where he meets Mulwray's former partner for a lunch meeting - Noah Cross is a sinister, corrupt millionaire, villainous but jovial tycoon who walks with a stick. [John Huston, famed director of The Maltese Falcon (1941), plays the part, tying this film to one of the earliest detective film noirs ever made. His name recalls the Biblical character who 'saved' the world from a watery flood. Ironically, he played Noah in his own film The Bible: In the Beginning... (1966). ] From their very first encounter, Cross deliberately mispronounces Gittes' name as a slight put-down, and then cautions him about the realities of life ("You may think you know what you're dealing with, but believe me, you don't"), in a milieu filled with moral corruption. Jake's response ties his lack of knowledge to his days as a cop in Chinatown: "It's what the district attorney used to tell me in Chinatown."

In the middle of their conversation, he also bluntly asks about whether Gittes has slept with his daughter (!), presumably because he doesn't want her "taken advantage of." [The real truth is revealed later.] Cross wants to know what the detective knows, and then asks Gittes to do a job for him - "find Hollis' girlfriend" - a prospect that will eventually lead to a tragic conclusion:

Cross: Mr. Gits.
Gittes: Gittes.
Cross: Oh. How do you do? You've got a nasty reputation, Mr. Gits. I like that.
Gittes: Thanks.
Cross: If you were a bank president, that would be one thing. But in your business it's admirable and it's good advertising.
Gittes: It doesn't hurt. (He looks down at a whole fish on his plate. The dead fish, out of its natural element, stares back.)
Cross: It's, um, why you attracted a client like my daughter.
Gittes: Probably. (They both look at the fish.)
Cross: But I'm surprised you're still working for her - unless she's suddenly come up with another husband.
Gittes: No. She happens to think the last one was murdered.
Cross: Umm, how'd she get that idea?
Gittes: I think I gave it to her.
Cross: I hope you don't mind. I believe they should be served with the head.
Gittes: Fine. As long as you don't serve the chicken that way.
Cross: Tell me, um, what do the police say?
Gittes: They're calling it an accident.
Cross: Who's the investigating officer?
Gittes: Lou Escobar. He's a lieutenant.
Cross: You know him?
Gittes: Oh yeah.
Cross: Where from?
Gittes: We used to work together in Chinatown.
Cross: Would you call him a capable man?
Gittes: Very.
Cross: Honest?
Gittes: As far as it goes. 'Course, he has to swim in the same water we all do.
Cross: 'Course, but you've no reason to think he's bungled the case?
Gittes: None.
Cross: That's too bad.
Gittes: Too bad?
Cross: Hmm. It disturbs me, makin' me think you take my daughter for a ride. Financially speaking, of course. What are you chargin' her?
Gittes: My usual fee plus a bonus if I get results.
Cross: (lasciviously) Are you, uh, sleeping with her? (No answer from Gittes.) Come, come, Mr. Gits. You don't have to think about that to remember, do ya?
Gittes: (He gets up to leave.) If you want an answer to that question, Mr. Cross, I'll put one of my men on the job. Good afternoon.
Cross: Mr. Gits.
Gittes: Git-tes.
Cross: Gittes. You're dealing with a disturbed woman who's just lost her husband. I don't want her taken advantage of. Sit down.
Gittes: What for?
Cross: You may think you know what you're dealing with, but believe me, you don't. (Gittes smiles.) Why is that funny?
Gittes: It's what the district attorney used to tell me in Chinatown.
Cross: Yeah? Was he right? Exactly what do you know about me? Sit down.
Gittes: Mainly that you're rich, and too respectable to want your name in the newspapers.
Cross: 'Course I'm respectable. I'm old. Politicians, ugly buildings, and whores all get respectable if they last long enough. I'll double whatever your fee is and pay ya $10,000 if you find Hollis' girlfriend.
Gittes: Girlfriend?
Cross: Disappeared, hasn't she?
Gittes: Yeah.
Cross: Couldn't it be useful to talk to her?
Gittes: Maybe.
Cross: If Mulwray was murdered, she'd be one of the last to have seen him alive.
Gittes: When's the last time you saw Mulwray?
Cross: (He watches men going by on horseback.) Sheriff's gold posse. Bunch of damn fools who pay $5,000 apiece towards the sheriff's re-election. I let 'em practice up out here.
Gittes: Yeah. Do you remember the last time you saw Mulwray?
Cross: At my age, you, uh, tend to forget.
Gittes: It was five days ago outside the Pig 'n' Whistle and you had one hell of an argument. I got the pictures in my office if that'll help you remember. What was the argument about?
Cross: My daughter. [This enigmatic answer rings true later. Which daughter?]
Gittes: What about her?
Cross: (abruptly changing the subject) Just find the girl, Mr. Gits. I happen to know Hollis was fond of her and I'd like to help her if I can.
Gittes: I had no idea you and Hollis were that fond of one another.
Cross: Hollis Mulwray made this city, and he made me a fortune. We were a lot closer than Evelyn realized.
Gittes: If you want to hire me, I still have to know what the argument was about.
Cross: My daughter is a very jealous woman. I didn't want her to find out about the girl.
Gittes: How did you find out?
Cross: I still got a few teeth left in my head, a few friends in town.
Gittes: OK. I'll, uh, I'll have my secretary draw up the papers. Tell me, uh, are you frightened for the girl or what Evelyn might do to her?
Cross: Just find the girl!
Gittes: I'll look into it as soon as I've checked out some orange groves.
Cross: Orange groves?
Gittes: We'll be in touch, Mr. Cross.

So within only hours, Gittes has been hired again - this time to find Hollis' mysterious, nameless girlfriend (his original assignment for the Mrs. Mulwray impersonator), and he is destined to check out "orange groves" in the valley.

At the Hall of Records for the County of Los Angeles, Jake asks to see the plat books for the Northwest Valley, where diversions of water are being made. (Ownership records for part of the Northwest Valley are unavailable because they lie outside of LA County in Ventura County.) He is directed to the location of plat books that exist only for Los Angeles County. Numerous land sales are in escrow with new owners buying up the land, shown with their names pasted in the plat books. Surprisingly, most of the valley has been sold in the last few months! After deceptively asking to borrow a ruler from the clerk, he coughs loudly as he rips out a section of the record book. A trip to the valley confirms the plat book records - farm land is rapidly being sold in the drought area.

Pieces of the puzzle begin to unravel more clearly - Gittes discovers widespread political corruption - greedy, crooked land speculators through dirty deals, led by Cross who opposed Mulwray, have engineered a plot to monopolize drought-stricken LA's water supply by water diversion.