Unable to find any trace of the secret document on Pettibone, the Germans kill him, stuff his body in a trunk, and deliver the trunk to Holmes in Washington. The Germans then turn their attention to the people with whom Pettibone mingled on the train from New York to Washington. Their logic is correct. Pettibone had lit a cigarette for a young woman (Nancy Partridge) and discreetly dropped the matchbook in her purse. The spies ransack the club car and find nothing.
Meanwhile, at an engagement party for Miss Partridge and her fiance, the matchbook is passed from one person to another, none of whom realizes what he is holding. By the time Holmes and Watson arrive at Miss Partridge's home, she has disappeared, having been kidnapped by the German spies. Holmes follows clues that lead him to an antique shop, owned by Richard Stanley (George Zucco). Stanley is in reality Heinrich Hinkle, head of spy ring and transporter of secret intelligence.
While Watson goes to fetch the police, Holmes attempts to rescue Miss Partridge. He allows himself to be captured by Stanley, whom he recognizes as the "head of the most insidious spy ring that ever existed." Holmes notices that Stanley has the matchbook in hand, unaware that it is anything other than an ordinary matchbook. Holmes says to Stanley that the man who has the document doesn't know it. Stanley mistakenly thinks Holmes is implying that Senator Babcock (another train passenger who spoke with Pettibone) has the document. Watson and the police arrive to save Holmes and Miss Partridge, and apprehend some of the spies, but in the ensuing fracas Stanley, with the matchbook in his pocket, escapes through a secret passageway.
Having correctly deduced that Stanley would head for Senator Babcock's office, Holmes meets him there and captures him. Holmes retrieves the matchbook and triumphantly pulls the microfilm out of the cover.
The final scene in the film is of Holmes and Watson driving down Pennsylvania Avenue, heading back to London. Holmes makes the usual patriotic speech, this one quoting Winston Churchill, from a speech he made in the U.S. Capitol:"It is not given for us to peer into the mysteries of the future. But in the days to come, the British and American people for their own safety and the good of all will walk together in majesty and justice and in peace."
The role of Nancy Partridge was played by Marjorie Lord, who may be better remembered as Danny Thomas's wife in Make Room for Daddy. Excellent performances were given by the villains: George Zucco as Stanley and Henry Daniell as Easter. Both of these actors played Moriarty opposite Basil Rathbone: Zucco in The Adventures of Sherlock Holmes, and Daniell in The Woman in Green. Rathbone gives his usual inspired performance, and is especially impressive as the eccentric collector in the antique shop. The original title of the film was Sherlock Holmes in the USA.