This chapter begins with Harry waking up and remembering what he had seen last night, but he dismisses it as a dream...at first.

Then an owl knocks on the window to deliver the ''Daily Prophet'' newspaper to Hagrid, who then tells Harry to pay the owl with five Knuts (little bronze wizard coins.) After they wake up, Hagrid takes Harry back to the mainland via the Dursleys' rented boat, and he reads his paper, grousing all the while about the incompetence of [[ChekhovsGunman Minister of Magic Cornelius Fudge.]] He asserts that Dumbledore would have made a better Minister but he refused to abandon his post as headmaster of Hogwarts.

Hagrid then takes Harry, by train, to London, where he is to buy all his Hogwarts school supplies. In London, they enter a grubby little pub and inn called the Leaky Cauldron (which apparently only wizards can see, let alone enter), where the clientele all recognize Harry and eagerly shake him by the hand. One of them, a Professor Quirrell, is one of Harry's Hogwarts teachers (Defense Against the Dark Arts). Behind the pub is yet another secret place for wizards - Diagon Alley, a streetful of shops concealed behind an enchanted brick wall.

Before going to get any of Harry's supplies, they first stop at the majestic marble Gringotts Bank. Run by goblins and rumored to be guarded by dragons (Hagrid also expresses his desire to raise his own dragon), the bank consists of a number of subterranean vaults accessed by a fast-moving rail system. They stop at two of these - the first contains a small fortune of [[GoldSilverCopperStandard gold Galleons, silver Sickles and bronze Knuts]] left to Harry by his parents; the second, vault 713, is very high security (it can only be opened by the touch of a Gringotts goblin's finger) but contains [[ChekhovsGun nothing but a small package, barely two inches long.]]

Harry then goes around Diagon Alley to buy the things from his shopping list. While being fitted for school robes at Madam Malkin's shop, he meets a pale blond boy whose attitude [[SpoiledBrat reminds him irresistibly of Dudley,]] but with even more self-superiority. He then gets his textbooks at Flourish and Blotts, potion ingredients from the Apothecary, and Hagrid even takes him to Eeylops Owl Emporium to buy him a beautiful snowy owl (who will be able to carry his mail) as a birthday present.

Finally, they make their way to Ollivander's Wand Shop. Mr. Ollivander, a very creepy-looking old man and expert on wands [[LudicrousPrecision (he remembers the wood, magical core, length and condition of every single wand he has ever made and sold, and even remembers which customer bought which wand),]] tries Harry out with a vast number of them. It is Ollivander's opinion that "[[LoyalPhlebotinum the wand chooses the wizard]]," and many of them just don't seem to work for Harry, until he finally gets one that is "holly and phoenix feather, eleven inches, nice and supple." This one sets off red and gold sparks as soon as Harry waves it, and Ollivander suggests that perhaps it was meant to be, as the phoenix feather within also has a "brother" - a feather from the exact same phoenix. This "brother" wand happens to belong to Lord Voldemort.

Harry is then taken back to the Underground by Hagrid, who puts him on a train back to Privet Drive and leaves him with a ticket for the Hogwarts Express, a train which will take students to school on the morning of September 1st.