Frodo awakes in Rivendell, where he has been tended for three days by Elrond himself, and his arm is now almost completely cured. Gandalf is also there and briefly explains Frodo what has happened. A great feast is held that evening in celebration of the victory at the Ford of Bruinen, and the four hobbits are guests of honour there. Frodo sees many new faces: Elrond, his daughter Arwen, and Glóin, one of the twelve dwarves who had accompanied Bilbo on his great journey. And to his greatest delight, he also meets Bilbo, who has lived in Rivendell ever since he had left the Shire. Bilbo recites a song about Eärendil, which he has just written, to a company of Elves. Then while the Elves sing and listen to tales, he and Frodo talk about their adventures for a long time.
A great council is held in Rivendell, which should determine what to do in the present situation to prevent Sauron from dominating over the world. On this Council there are Elrond, Gandalf, Frodo, Bilbo, Glóin, Glorfindel, Aragorn, many Elves from Rivendell, as well as strangers from abroad, such as Legolas, son of Thranduil the King of the Elves of Mirkwood, and Boromir, son of Denethor the Steward of Gondor. Glóin tells that messengers from Mordor have come to the Dwarves, seeking information about Bilbo and his Ring. Then the entire history of the Ring is told, from its forging to the adventures of Bilbo and Frodo. Gandalf gives an account of his doings in the summer, when he was held captive by Saruman the White, a mighty wizard that has become a traitor. The Council concludes that since the Ring cannot be used by anyone save Sauron, nor can it be kept beyond Sauron's reach forever, it should be destroyed in Orodruin. In the end Frodo says he would accept this task (and is amazed at his own words), and Elrond approves of it.
Many scouts are sent out of Rivendell in all directions to search for news of any servants of the Enemy, and return about two months later without having discovered any important news. Elrond chooses companions for Frodo; and the Company of the Ring consists of Frodo, Sam, Gandalf, Strider, Legolas, Gimli, Boromir, Merry and Pippin. Bilbo gives his sword, Sting, and his shirt of dwarf-mail, to Frodo. The Company sets out southwards, and travels west of the Misty Mountains for many days, mostly under the cover of the night. They notice many crows and hawks flying over them, and are worried that the birds might be spies of the Enemy. The Company attempts to cross the Misty Mountains over the Pass of Caradhras, but it seems that the mountain hates them: a great storm and huge amounts of snow stop them and they are forced to turn back, lest they should freeze to death in the snow.
The only remaining way for the Company to reach the other side of the Mountains now leads through the mines of Moria, or Khazad-dum, which was of old a splendid realm of the Dwarves, but is now desolate and known as a dreadful place. The Company is attacked by Wargs, great wolves of Sauron, and although they succeed to beat off the first attack, it seems that going through Moria is the only way now to avoid being slain by the wolves some night or another. They find the Doors of Moria and Gandalf discovers the password that opens them. Just as they are about to enter, tentacles belonging to an unknown yet undoubtedly evil creature creep out of the pool in front of the Doors, and almost succeed in dragging Frodo into the water. The Company escape inside, and quickly discover that the Doors have been barred from outside. They travel through the darkness of the Mines for two days, and Frodo frequently believes he hears distant footsteps following them. On the morning of the third day they reach Balin's tomb and find a book of chronicles there.
Gandalf reads the chronicles for a while, and learns among other things also about the location of the tomb within Moria, which should make it easier to find the way out. However, just as they intend to set off again, they are attacked by a large number of Orcs accompanied by Trolls. They defend themselves valiantly in the chamber of the tomb, and as the attack stops for a while they escape through the other door out of the tomb. Gandalf tries to lock the door with a spell; he is opposed by a counter-spell of an unknown but apparently very strong opponent, and under their pressure the door breaks and the entire chamber collapses. This blocks the passage and frees the Company from the pursuit for a while. They keep on descending and reach the level below the Gates. Here the Orcs have prepared a trap of fire for them, but since the Company did not come down the main road and the Orcs did, this cuts the Company from the pursuers. The way out leads over a narrow bridge over a chasm, which was made as a defence by the Dwarves of old. The Trolls bring stone slabs to cross their barrier of fire, and before the Company manages to cross the bridge, a Balrog appears: a great man-like creature wielding a sword and a fiery whip. Gandalf fights with it on the bridge; the bridge breaks and both the wizard and the Balrog fall into the chasm. The rest of the Company safely escapes out of Moria.
Gimli and Frodo visit the Mirrormere. Then the Company continue their way, and Aragorn tends Frodo's and Sam's wounds. They enter the forest of Lórien, and cross the river Nimrodel. They are stopped by three guards, Elves of Lothlórien, who allow them to sleep in their tree-platforms. This proves good as a host of Orcs passes beneath the trees that night, and Gollum is also seen spying around. Since Elrond's messages have already reached Lórien, the Company are permitted to pass into Lórien, but with their eyes blindfold and accompanied by two guards. They meet more Elves the following day, who bring a message from the Lord and Lady of the Galadhrim giving permission to the Company to walk with their eyes free. Lórien is a strange, wonderful land, where many ancient and fair things still live on as they did in the Elder Days. They reach Cerin Amroth, the Mound of Amroth, of which Aragorn seems to have very pleasant memories.
The Company spend several days in the capital city of Lothlórien; they meet Lord Celeborn and Lady Galadriel there, and talk with them about their Quest and about Gandalf. One evening Galadriel takes Frodo and Sam to a garden enclosed with a hedge; she fills a silver basin with water from a stream, which creates a magic Mirror. She permits them to look into the mirror, but warns them that it may show the past or the future, and it can be treacherous to shape one's actions according to the visions in the mirror. Sam looks in the mirror first, and sees trees being cut down all over the Shire. Then Frodo looks in the mirror, and sees many things: Gandalf in a white robe; Bilbo, walking about his room; the Sea; the Eye of Sauron. Frodo sees upon Galadriel's finger Nenya, one of the Three Rings, and offers her the One Ring, but she rejects it.
The Company is about to leave Lórien, and the Elves give them three light boats to ease their journey down the Anduin; they also give the Company grey elven-cloaks, several good ropes, and some lembas, a special kind of bread, very little of which can give one enough strength for an entire day. As they sail down the river for a while, they meet a ship whose shape resembles a swan. Aboard it there are Celeborn and Galadriel, and the Company are invited aboard for a farewell feast. Galadriel gives a gift to each member of the Company, most notably a crystal phial to Frodo, a box of soil from Lórien to Sam, and a silver brooch with a green gem to Aragorn. Then the Company finally leave Lórien and continue their voyage; leaving that fair land is a great grief to all of them. Note: several passages giving important information concerning the Elves appear in this chapter, as well as in the previous two.
The Company travel southwards down the Anduin, the Great River, on the elven-boats for several days. Gollum is following them on a log of wood, which is potentially dangerous not only because of Gollum himself but also because he could attract the attention of Orcs holding the lands east of the river. They also notice an eagle far up in the sky, and decide to travel by night to minimise the chances of being spotted. One night they come very close to the Rapids of Sarn Gebir, and are there attacked by Orcs from the east-bank. A strange dark shape flies over them, and Legolas shoots it down with his bow; this dismays the enemies, the attack stops and the Company retreat into a bay a short way up the river. Here they notice that they had spent almost a month in Lórien. They carry their boats and baggage along an old path past the Rapids, and continue the voyage past the Argonath, the Pillars of the Kings, great statues of Isildur and Anárion built long ago by the Númenóreans. They come near the Falls of Rauros, where their final course should be decided: to go east to Mordor, or to turn south towards Minas Tirith.
The Company spend the night on the western bank of the River. The blade of Sting, Frodo's sword, is gleaming, indicating that Orcs are not far. The next day they must decide their future course; the choice lies on Frodo, since the Ringbearer's course can only be decided by the Ringbearer himself. Frodo feels he could make the decision more easily if he was alone, and the others give him an hour to make up his mind. He walks away and unsuccessfully tries to make a clear decision. Meanwhile, Boromir leaves the Company without being noticed, finds Frodo in the forest and urges him to give the Ring to him. Yet Frodo is now firmly determined to go to Mordor and attempt to destroy the Ring; Boromir becomes angry and starts to threaten him, so Frodo puts on the Ring and runs away. He goes to the top of the hill of Amon Hen, from where he can see (still wearing the Ring) nearby and distant lands as far as the land of Mordor. He feels the Eye of Sauron searching for him, and finally gathers the strength to put off the Ring. He decides to leave the Company secretly, at once, as otherwise he might never gather the courage to depart again. Meanwhile Boromir returns to the Company and they start to look for Frodo; while the others are searching, Sam realizes that Frodo is probably trying to leave them, and returns to the boats just when Frodo is dragging a boat into the water. Soon afterwards they leave together, cross the river and head south-westwards towards Mordor.