The fighting festival starts with an elimination round that results in eight contestants left standing. The first round of the quarterfinals is Holy Knight Griamore versus "Matrona", in which Matrona manages to break Griamore's barrier and send him flying. Matrona is revealed to be a shrunken Diane wearing Elizabeth's clothing. Diane and Elizabeth previously encountered a giant mushroom called a Chicken-Matango that shrunk them both when it felt threatened. The second round is Holy Knight Howzer versus three-time champion Taizoo, in which the former defeats the latter with one punch. The third round is King versus Cain Barzad, a drunken old man. Since King is nearly powerless without his weapon, Cain easily knocks King out of the ring. The final round is Meliodas versus Ban, and Howzer learns from Griamore that the two are members of the Seven Deadly Sins.

Meliodas and Ban engage in a fierce fight that shakes the ground beneath them, equally matched due to their incredible strength and agility. However, Meliodas grabs onto Ban's wrist and blasts him out of the ring, thereby winning the round. The first round of the semifinals is Diane versus Howzer, in which Howzer goes all out with his windy punches, but Diane does a body slam on Howzer and wins the round. The second round is Cain versus Meliodas, in which Cain believes that Meliodas betrayed the kingdom in the past. When Meliodas says that he did not betray the kingdom, Cain trusts Meliodas and forfeits the round. The round of the finals is Diane versus Meliodas, while Guila and Jericho are making their way towards Vaizel.

Guila and Jericho interrupt the tournament and cause terror upon the merchant town. King subdues Guila and Jericho after Meliodas and Ban are defeated by them, but King is later overwhelmed by Holy Knight Helbram, who was disguised as tournament referee Love Helm. Meanwhile, Elizabeth returns to her normal size and stumbles upon her elder sister Veronica Liones, who scolds Elizabeth for being involved with Meliodas. Veronica then traps Meliodas inside Goddess Amber, a stone specifically made to seal demonic beings. Elizabeth runs away with Meliodas's sword and Goddess Amber, while Griamore temporarily restrains Guila and Jericho. Veronica catches up to Elizabeth and shields her from an explosion made by Guila, which causes Veronica to pass away. When Elizabeth calls out for Meliodas, he emerges from within Goddess Amber with a darker side to him.

Gowther gives the head of the Armor Giant to the members of Dawn Roar in order to convince them to withdraw from battle. However, the demon breaks through the armor and attacks Meliodas, Ban, King and Gowther. Meliodas lowers his guard upon noticing a Holy Knight merged into the demon's chest, but Gowther uses his Sacred Treasure, the Twin Bow Herritt, to stop the demon. Meanwhile, Cain visits Elizabeth in the Boar Hat, where he tells her the story of Liz, a knight from an enemy kingdom who became Meliodas's past lover after he saved her from being sentenced to death. Ban gouges out the heart of the Holy Knight, recognized as Guila's father Dale, yet the demon still remains alive. Elizabeth rushes to Meliodas and gives him Liz's sword left behind, which allows him to destroy the demon. It is realized that Dale was one of Hendrickson's failed demon experiments.

Gowther is welcomed by the others into their group, but he soon finds out the true secrets behind them by delving deep into their memories and emotions. Meanwhile, Hendrickson and Helbram have the hilt of Meliodas's sword in possession, in which they plan to use it as a fragment of a ritual relic, known as the Coffin of Eternal Darkness, to resurrect the red demon race as a means to start a holy war. At the Boar Hat, Holy Knight Vivian suddenly appears and kidnaps Elizabeth and Hawk. Diane throws Meliodas, Ban and Gowther toward the Kingdom of Liones, where the three are bombarded by an army of Holy Knights on the north side of the castle. However, Arthur Pendragon, the young king of Camelot, has approached the south side of the castle with his own army.