Siegfried had now fashioned his sword, and was singing gleefully as he hammered it on the anvil, calling it lovingly by name, and finishing it off with wondrous skill; and by the time the gnome had brewed his fatal draught, the magic blade, Needful, was completely restored.
With a loud shout of joy Siegfried seized the mighty weapon, and struck it with all his force upon the anvil to test its strength; and the blow was so great that the anvil split from top to bottom, and fell asunder with a terrific crash.
But Needful remained bright and unscratched; and swinging the wonderful sword exultingly over his head Siegfried rushed out of the cave, calling on the awed and shrinking Mime to lead him to the dragon's den. The dwarf, quickly recovering himself, and remembering the prize in store for him, took up the horn containing the fatal draught he had brewed; and joining Siegfried immediately, he led him unerringly through the forest to the wild spot where Fafner's cave was situated.
Here Alberic the Nibelung had been awaiting the dragon's death for many years; and having learnt this very day from Wotan, the Wanderer, of the near approach of Siegfried, he had slipped back into a rocky cleft to watch what happened.
Soon afterwards, Siegfried and Mime came forth from the forest; but the timid dwarf did not dare to remain long near the cave, and quickly departed to hide, after telling the youth that the dragon would soon appear. The young hero presently blew a long, loud blast upon his hunting-horn; and almost immediately afterwards, the terrible giant dragon, Fafner, came out from his cave, demanding who summoned him.
Siegfried stared at the great beast in amazement; but not a single spark of alarm was in his brave heart as he boldly announced that he had come to learn what fearing was. Fafner replied that he was overbold, since he should now serve him as food; but upon this, Siegfried, having no mind to provide a meal for the unwieldy creature, though fearless still, drew his sword, Needful, and smilingly sprang forward to meet his enemy.
With fire and poisonous fumes issuing from his nostrils, the dragon rushed upon him; but as it raised its huge body, Siegfried dashed boldly beneath the gaping jaws, and buried his sword in the monster's breast.
As the dragon rolled over, dead, Siegfried drew his sword triumphantly from its body; but in so doing, he accidentally tasted the creature's blood. Suddenly he discovered, to his joy, that he could now understand the language of the birds around him; and being especially attracted by the notes of a pretty wood-bird, he went nearer to listen to what it had to say. The wood-bird told him to enter the cave, and possess himself of the dragon's treasure, adding that if only he gained the Tarnhelm and magic Ring, he could make himself lord of the whole world.
Full of joy, Siegfried rushed into the cave; and at that moment Mime and Alberic came forth from opposite directions, scowling with surprise and anger as they recognised each other. They instantly began to quarrel as to which should have the treasure; but when Siegfried presently issued from the cave, with the Ring on his finger and the wishing-cap tucked into his belt, Alberic departed, content to let his curse take effect upon the spoiler.
As Siegfried passed under the trees, the wood-bird again spoke to him: and this time his feathered friend warned him that Mime was his enemy, and meant to poison him in order to obtain the treasures he had won. The youth, having always suspected the dwarf of evil intentions, was thus put upon his guard; and when Mime presently drew near with insinuating smile, and pleasantly offered him the horn of poison as a "cooling drink," he instantly plunged his sword into the traitor's heart.