While the dwarf Mime is abandoning himself to moody despair, Wotan has been walking through the forest.  He is disguised as a Wanderer, according to his wont, and suddenly enters Mime’s cave.  The dwarf starts up in alarm at the sight of a stranger, but after asking him who he may be, and learning that he prides himself upon his wisdom, he bids him begone.  Wotan, however, who has come hither to ascertain whether there is any prospect of discovering anything new, now proposes a contest of wit, in which the loser’s head shall be at the winner’s disposal.  Mime reluctantly assents, and begins by asking a question concerning the dwarfs and their treasures.  This Wotan answers by describing the Nibelungs’ gold, and the power wielded by Alberich as long as he was owner of the magic ring.

Mime’s second inquiry is relative to the inhabitants of earth, and Wotan describes the great stature of the giants, who, however, were no match for the dwarfs, until they obtained possession not only of the ring, but also of the great hoard over which Fafnir now broods in the guise of a dragon.

Then Mime questions him concerning the gods, but only to be told that Wotan, the most powerful of them all, holds an invincible spear upon whose shaft are engraved powerful runes.  In speaking thus the disguised god strikes the ground with his spear, and a long roll of thunder falls upon the terrified Mime’s ear.

The three questions have been asked and successfully answered, and it is now Mime’s turn to submit to an interrogatory, from which he evidently shrinks, but to which he must yield.  Wotan now proceeds to ask him which race, beloved by Wotan, is yet visited by his wrath, which sword is the most invincible of weapons, and who will weld its broken pieces together.  Mime triumphantly answers the first two questions by naming the Volsung race and Siegmund’s blade, Nothung; but as he has failed to weld the sword anew, and has no idea who will be able to achieve the feat, he is forced to acknowledge himself beaten by the third.

Scorning to take any advantage of so puny a rival, Wotan refuses to take the forfeited head, and departs, after telling the Nibelung that the sword can only be restored to its pristine glory by the hand of a man who knows no fear, and that the same man will claim it as his lawful prize and dispose of Mime’s head:—­

   ’Hark thou forfeited dwarf;
    None but he
    Who never feared,
    Nothung forges anew. 
    Henceforth beware! 
    Thy wily head
    Is forfeit to him
    Whose heart is free from fear.’

When Siegfried returns and finds the fire low, the dwarf idle, and the sword unfinished, he angrily demands an explanation.  Mime then reveals to him that none but a fearless man can ever accomplish the task.  As Siegfried does not even know the meaning of the word, Mime graphically describes all the various phases of terror to enlighten him.