Warden Reed is visited by Merton and his gang of criminals. They visit Jonathan Crane in his cell. Reed explains the toxin his father injected him with overloaded his fear response, and that he uses that to control Jonathan. Merton explains that he needs Jonathan's fear serum, and pays Reed to release him. Later, detectives Jim Gordon and Harvey Bullock visit Arkham to question Reed. Reed tells the detectives that he doesn't want them to visit Jonathan since his condition is fragile and seeing the men who killed his father might push him over the edge. Jim informs him that Crane's toxin was used to rob a bank and the people who did it challenged Penguin. Harvey and Jim threaten Reed, by telling him that they'll inform Penguin that he was involved in the robbery. Reed reluctantly admits that he was threatened and gives up the name, Grady.
Reed attempts to cover up his illegal activities by destroying paperwork, only to find himself approached by Jonathan, identifying himself as the Scarecrow and even donning attire to fit with his new moniker. Jonathan lectured Reed on not giving him the proper treatment at the asylum, instead torturing and manipulating him to keep him in line. Jonathan informs Reed that he has embraced the bogeyman that has been tormenting him, before spraying Reed with his fear toxin. Reed begins to hallucinate his greatest fear, clowns, and begins staggering through the asylum corridors, opening fire on those he believes to be clowns attacking him. When Gordon infiltrates the asylum to stop Jonathan, he is attacked by Reed who dons clown makeup and has lost his mind due to the fear toxin. Gordon manages to fight Reed off, causing him to scarper.