In the film's most memorable scene, Jake has just concocted a murder theory: the glasses in the pond belong to Evelyn's late husband and the pond is where she drowned him - out of jealousy for his affair. The "girl" was a witness to the murder, so Evelyn had to "keep her mouth shut":

There's no time to be shocked by the truth. The coroner's report proves that he had salt water in his lungs when he was killed. Just take my word for it, all right? Now, I want to know how it happened, and I want to know why, and I want to know before Escobar gets here because I don't want to lose my license...I want to make it easy for ya. You were jealous. You had a fight. He fell. He hit his head. It was an accident but his girl is a witness. So you had to shut her up. You don't have the guts to harm her, but you got the money to keep her mouth shut.

He desperately and insistently wants her to tell the truth and neatly wrap up the case - he is determined that she confess the identity of the blonde girl that she has been sheltering, reiterating: "There's no time to be shocked by the truth." He also probably suspects that Evelyn may be plotting to murder the girl. She accuses him of having a "crazy" and "most insane" idea.

Appearing to be hiding something throughout the entire film, she finally tells the truth to him - the girl, Katherine (Belinda Palmer) is NOT her dead husband's girlfriend, but is the product of a union between her and her father, Noah Cross. To discover this shameful fact, Jake has to slap her again and again - until he realizes that she isn't making a fool out of him, but she really is telling the truth. The girl is her sister - and her daughter:

Jake: Who is she? And don't give me that crap about your sister, because you don't have a sister.
Mrs. Mulwray: I'll tell you, I'll tell you the truth.
Jake: Good. What's her name?
Mrs. Mulwray: Katherine.
Jake: Katherine who?
Mrs. Mulwray: She's my daughter.
Jake: (He slaps her.) I said, 'I want the truth.'
Mrs. Mulwray: She's my sister. (He slaps her again.) She's my daughter. (Slap.) My sister, my daughter. (Slap. Slap.)
Jake: I said, 'I want the truth!' (He throws her against the sofa.)
Mrs. Mulwray: ...She's my sister and my daughter!...My father and I - understand? Or is it too tough for you?
Jake: He raped you? (She shakes her head no.)

Her revelation is startling and unexpected - he is the one who is "shocked by the truth." The terrible truth of unimaginable evil is that Mrs. Mulwray had incestuous relations with her father, Noah Cross. Hollis Mulwray's "mistress" was, in fact, the offspring of their earlier liaison. This fact is indirectly related to the water department, the land (San Fernando Valley) swindle or water conspiracy, the building of the new reservoir, the corrupt money, Hollis' murder, and Gittes' setup.

[Noah Cross' incest with his own daughter parallels his abusive 'violation' and exploitation of LA county land. Mulwray's murder was caused by both personal and political motivations - Hollis knew about Cross' manipulation of water supplies to create a drought, and also was attempting to protect his wife's young blonde daughter/sister from the predatory, acquisitive Cross.]

Jake: Then what happened?
Mrs. Mulwray: I ran away.
Jake: To Mexico.
Mrs. Mulwray: Hollis came and took care of me. I couldn't see her. I was fifteen. I-I wanted to, but I couldn't. Then, now I want to be with her. I want to take care of her.
Jake: Where are you gonna take her now?
Mrs. Mulwray: Back to Mexico.

The struggle over the girl directly led Cross to murder Hollis Mulwray. Hollis and Evelyn were trying to protect the innocent girl from her incestuous father, who has now extended his grasping reach toward her.

With a change of heart after learning the truth and realizing that Evelyn is innocent, Gittes decides to help Evelyn and her daughter avoid Escobar and his men. He suggests that she avoid both the railway station and the airport and instead go to her Chinese butler's home in Chinatown (1712 Alameda). And as a footnote to everything, Evelyn casually observes that the spectacles aren't Hollis' - "those didn't belong to Hollis...He didn't wear bifocals." [The bifocals belong to her father Noah Cross, who smashed and lost his bifocals during the lethal struggle. The glasses point to the identity of the murderer, not the victim.]

Katherine is brought down the stairs to meet Jake: "Katherine, say hello to Mr. Gittes." Jake tells Mrs. Mulwray that he knows where they are going in Chinatown: "Sure." He lowers the front window's bamboo shade as he watches them leave from the front of the street. He then calls colleagues Duffy and Walsh to meet him at the Chinatown address in about two hours if they haven't heard from him.

After Escobar and Loach arrive at the house, Jake is able to elude them by leading them to Curly's home in San Pedro where he alleges that Evelyn is hiding. He interrupts their dinner - Curly's wife (Elizabeth Harding) answers the door - with a bruised black eye from a beating by her husband for her adultery. Gittes convinces his fisherman/client to drive him away in his truck parked in the alley (this is the truck that Curly proposed selling to pay the detective's fee). In exchange for his previous investigative services, he suggests that Curly provide safe passage that night for Evelyn and Katherine (and their luggage) by smuggling them from Los Angeles to Ensenada. They will be waiting for him there in Chinatown. Cocky as always about his plan, Gittes assures a wary Curly: "Do you know how long I've been in this business?"

For his final showdown with Cross, Gittes calls him and arranges a meeting at the Mulwray mansion - the scene of the crime - and he baits him: "Have you got your checkbook handy, Mr. Cross? I've got the girl." Gittes also possesses what he believes provides clear evidence of who murdered Mulwray - the camera pans down to Cross' pair of smashed bifocals that were fished out of the pond - they sit on the table by the phone.

When Cross drives up to the house, a puff of smoke is blown from the left - where an off-screen Gittes waits confidently. During their encounter, Gittes tells Cross that "the girl" is with "her mother." He also wants to pursue questioning about the phony valley land investors by showing Cross his evidence - the obituary column. [Another murder clue: Cross must hold his replacement pair of spectacles (not bi-focals) at an angle to read the paper in the dim light.] Secondly, he dangles the spectacles and accuses Cross of killing Mulwray in the fishpond ("where life begins" - and ends) - and leaving his smashed bifocals behind. Cross, however, explains his business aspirations and motivations - while denying greed. He believes that the new dam will be constructed to irrigate land in the valley - for "the future." That will cause LA to grow and become one vast metropolitan area and it will benefit those who own land in the valley:

Cross: What does it mean?
Gittes: That you killed Hollis Mulwray - right here - in that pond. You drowned him, and you left these [the bifocals]. Coroner's report shows Mulwray had saltwater in his lungs.
Cross: Hollis was always fascinated by tidepools. You know what he used to say?...That's where life begins. Sloughs, tidepools. When he first come out here, he figured if you dumped water into the desert sand and let it percolate down to the bedrock, it would stay there instead of evaporate the way it does in most reservoirs. You only lose 20% instead of 70 or 80. He made this city.
Gittes: That's what you were going to do in the valley.
Cross: That's what I am doing. If the bond issue passes Tuesday, there'll be eight million dollars to build an aqueduct and reservoir. I'm doing it.
Gittes: Gonna be a lot of irate citizens when they find out that they're paying for water that they're not gonna get.
Cross: Oh, that's all taken care of. You see, Mr. Gits. Either you bring the water to LA or you bring LA to the water.
Gittes: How you gonna do that?
Cross: By incorporating the valley into the city. Simple as that.
Gittes: How much are you worth?
Cross: I've no idea. How much do you want?
Gittes: I just want to know what you're worth. Over ten million?
Cross: Oh my, yes!
Gittes: Why are you doing it? How much better can you eat? What can you buy that you can't already afford?
Cross: The future, Mr. Gits - the future! Now where's the girl. I want the only daughter I've got left. As you found out, Evelyn was lost to me a long time ago.
Gittes: Who do you blame for that - her?
Cross: I don't blame myself. You see, Mr. Gits. Most people never have to face the fact that at the right time, the right place, they're capable of anything.

Cross has brought Mulvihill with him, with a gun pointed at the detective's head. At Cross' urging, the incriminating evidence - the glasses - are confiscated and Gittes reluctantly leads them to Chinatown to the girl.

In the startling and despairing ending scene, the only scene in the film that actually takes place in Chinatown, all the characters converge including the unsuspecting police (on Cross' payroll: "He owns the police"). The sequence opens in the circumscribed area beyond true police and governmental control with passing views of neon-lighted Chinese restaurants and colorful lanterns, accompanied by discordant, blaring piano chords and a snare drum. Gittes notices that his operatives Walsh and Duffy have already been handcuffed. He appears willing to escape from Cross and holds out his hand to be cuffed by Escobar's partner, Loach, "for withholding evidence, extortion, accessory after the fact." But Gittes' protests are ignored when he argues, powerlessly, that Cross, Evelyn's incestuous father, is "the bird you're after...He's crazy, Lou. He killed Mulwray because of the water thing...Lou, you don't know what's going on here, I'm tellin' ya."

During Evelyn's getaway with Curly and the butler and maid in their native town, Cross finally catches up with his two daughters. He stumbles when guiltlessly identifying himself to the girl as her grandfather. Evelyn pushes her evil father away and attempts to get her depraved father away from the girl. Cross pleads with her to release the young girl - his offspring:

Cross: Evelyn, pleeease, pleeease be reasonable...How many years have I got? She's mine too?
Evelyn: She's never going to know that.

With that, Evelyn pulls out a small pistol and threatens her father. Gittes suggests letting the police handle everything, but she replies with futility: "He owns the police." Cross tries to reason with her and accuses her of being neurotic and paranoid: "Evelyn, you're a disturbed woman, you cannot hope to provide...You'll have to kill me first." And with that, she wounds her father in the arm in full view of everyone, and then attempts to escape by car with Katherine.

In the gripping final scene, Escobar fires his pistol twice into the air as a warning, and then once at the car's tires. Loach, still handcuffed to Gittes, takes three more shots at the escaping car as it recedes out of view - and one of his shots is fatal. Suddenly the car slows to a stop in the far distance. The blaring horn of the car signals a death for Jake. [The horn also sounded when Evelyn's head fell forward onto the car's wheel outside the house where Katherine was being kept.] There are Katherine's screams, as the awful, horrible scene is revealed - slumped over the wheel of her car is Evelyn, shot through the head from behind. Gittes is the first to get to the car - he opens the driver's door and she flops to the side. Her face is horribly blown apart through her flawed eye - she has literally been destroyed by her father. Escobar has the cuffs removed from Gittes' arms when he orders: "Turn them all loose." Cross, lamenting "Lord, Oh Lord," clumsily shields and covers the eyes of an hysterical Katherine - telling her "Don't look, don't look" - to prevent her from comprehending the enormous tragedy. The domineering, capitalistic water tycoon and controlling father/grandfather comforts her and ends up taking her away.

Powerless to prevent the inevitable tragedy that he has exposed, Jake is stunned, shocked, and numb -- and cannot help but recognize (and see) the part he played in it. He is filmed in stark profile from the left, accentuating the stitches on his wounded nose. With Jake's last words, he mumbles what he told Evelyn he used to do in Chinatown and has again succeeded in doing: "As little as possible." His meddling into the mystery, and his emotional involvement in this case has led to a chaotic finale, where he is left to repeat past history in the dark streets of Chinatown.

The devastated Gittes is ordered by Escobar to get the hell out of there and go home as a "favor":

What's that? What's that? You want to do your partner a big favor? (To his men) Take him home. Take him home! Just get him the hell out of here. (To Jake) Go home, Jake. (Whispering) I'm doing you a favor.

Gittes' associate Walsh also tells the detective to lay the inexplicable blame on the foreign area and repress the nightmarish tragedy - as he is led away, in a haunting closing line:

Forget it, Jake. It's Chinatown!

Gittes is cautioned to detach himself emotionally from the case - something that he will find impossible to do. [In the sequel, The Two Jakes (1990), an older Jake is preoccupied by his haunted memories of tragic victim Evelyn and the unanswered question of the fate of her daughter Katherine. After learning Katherine's identity during another case in the conclusion of the sequel, he tells/warns her with these words as the film ends: "It [the past] never goes away."]

Sirens sound as Escobar orders the clearing of curious spectators that are gathering on the street:

All right. Come on, clear the area. On the sidewalk. On the sidewalk, get off the street.