Siegfried listens to his explanations, but when they have come to an end and he has ascertained that such a feeling has never been harboured in his breast, he springs up and seizes the pieces of the broken sword.  He files them to dust, melts the metal on the fire, which he blows into an intense glow, and after moulding tempers the sword.  While hammering lustily Siegfried gaily sings the Song of the Sword.  The blade, when finished, flashes in his hand like a streak of lightning, and possesses so keen an edge that he cleaves the huge anvil in two with a single stroke.

While Siegfried is thus busily employed, Mime, dreading the man who knows no fear, and to whom he has been told his head was forfeit, concocts a poisonous draught.  This he intends to administer to the young hero as soon as the frightful dragon is slain, for he has artfully incited the youth to go forth and attack the monster, in hope of learning the peculiar sensation of fear, which he has never yet known.

In another cave, in the depths of the selfsame dense forest, is Alberich the dwarf, Mime’s brother and former master.  He mounts guard night and day over the Neidhole, where Fafnir, the giant dragon, gloats over his gold.  It is night and the darkness is so great that the entrance to the Neidhole only dimly appears.  The storm wind rises and sweeps through the woods, rustling all the forest leaves.  It subsides however almost as soon as it has risen, and Wotan, still disguised as a Wanderer, appears in the moonlight, to the great alarm of the wily dwarf.  A moment’s examination suffices to enable him to recognise his quondam foe, whom he maliciously taunts with the loss of the ring, for well he knows the god cannot take back what he has once given away.

Wotan, however, seems in no wise inclined to resent this taunting speech, but warns Alberich of the approach of Mime, accompanied by a youth who knows no fear, and whose keen blade will slay the monster.  He adds that the youth will appropriate the hoard, ere he rouses Fafnir to foretell the enemy’s coming.  Then he disappears with the usual accompaniment of rushing winds and rumbling thunder.

The warning which Alberich would fain disbelieve is verified, as soon as the morning breaks, by the appearance of Siegfried and Mime.  The latter is acting as guide, and eagerly points out the mighty dragon’s lair.  But even then the youth still refuses to tremble, and when Mime describes Fafnir’s fiery breath, coiling tail, and impenetrable hide, he good-naturedly declares he will save his most telling blow until the monster’s side is exposed, and he can plunge Nothung deep into his gigantic breast.

Thus forewarned against the dragon’s various modes of attack, Siegfried advances boldly, while Mime prudently retires to a place of safety.  He is closely watched by Alberich, who crouches unseen in his cave.  Siegfried seats himself on the bank to wait for the dragon’s awakening, and beguiles the time by trying to imitate the songs of the birds, which he would fain understand quite clearly.  As all his efforts result in failure, Siegfried soon casts aside the reed with which he had tried to reproduce their liquid notes, and, winding his horn, boldly summons Fafnir to come forth and encounter him in single fight.