Book II, Chapter 7: "The Mirror of Galadriel" Haldir welcomes the Fellowship to Caras Galadhorn, the "City of the Trees," the city where live Lord Celeborn and Lady Galadriel. Aragorn tells of Gandalf's fall in Moria. Galadriel warns the Fellowship that their quest "stands upon the edge of a knife," and success or failure depends upon each person's faithfulness. She scrutinizes each member in turn; at her promise of a peaceful rest for the night, they "sighed and felt suddenly weary, as those who have been questioned long and deeply, though no words had been spoken openly." That night, some members of the Fellowship tell each other that, when Galadriel looked at them, they each felt as though they had been given a chance to abandon their quest in favor of something each one desired. Boromir suspects Galadriel of tempting them and "offering what she pretended to have the power to give." He does not reveal what desire had been presented him. Neither does Frodo reveal what he experienced when Galadriel gazed at him. Again, Aragorn attempts to correct Boromir: "There is in [the Lady Galadriel] and in this land no evil, unless a man bring it hither himself."

One night during their stay in Lothlórien, Galadriel silently beckons Frodo and Sam to her mirror: a silver basin filled with water, which shows "things that were, and things that are, and things that yet may be." When Sam looks into the mirror, he sees a pale-faced Frodo asleep under a cliff, and himself climbing a tall and winding stairway, seeking something. He then sees trees in the Shire being cut down, replaced by brick buildings and smoking chimneys of industry. Readers may here note Tolkien's critique of industrialization, which he will develop further in Book III.

When Frodo looks into the mirror, he sees a figure cloaked in white who reminds him of Gandalf, but Frodo cannot be sure that he is not seeing Saruman instead. He sees Bilbo in his room at Rivendell. He sees images in rapid succession, "parts of a great history in which he had become involved" (images which readers will encounter later in Books V and VI.) Finally, however, Frodo sees a large, lidless Eye, ringed with flame, seeking Frodo and the Ring. Galadriel confesses that she has seen the Eye as well: it is the Eye of Sauron. Galadriel, too, is a Ring-bearer: she wears one of the three remaining Rings given to Elves. Sauron suspects its existence, but is not certain-"not yet." She explains that, if Frodo fails, the Elves will be vulnerable to Sauron; but, if Frodo succeeds, the Elves must depart forever to the West, their time in Middle-earth having come to an end.

On hearing this explanation, Frodo offers the One Ring to Galadriel. She confesses that she has desired it, and that she would be a "beautiful and terrible" Queen: "All shall love me and despair!" For a moment, she seems to Frodo "beautiful beyond enduring, terrible and worshipful." Yet, when the moment passes, she claims she has passed the test: "I will diminish, and go into the West, and remain Galadriel." This scene finds a parallel in Frodo's offering of the Ring to Gandalf in Book I; through it, Tolkien again shows how the Ring, even in the hands of those who would initially want to use it for good ends, would ultimately lead to corruption and evil.