As the group continues their journey, they come across a shape-shifter named Beorn who warns them of the dangers that lie ahead and provides them with ponies to ride. They then journey through the dark forest of Mirkwood, where they encounter giant spiders and are captured by Wood-elves.
Bilbo, using the One Ring to become invisible, helps free his companions and they escape the Elvenking's stronghold in barrels down the river. They then make their way to Lake-town, where they meet Bard the Bowman, who agrees to help them in their quest.
Once they reach the Lonely Mountain where Smaug resides, Bilbo sneaks into the dragon's lair and discovers a weakness in the dragon's armor. The group then devises a plan to defeat Smaug and reclaim their treasure.
However, in the midst of their battle with the dragon, the One Ring begins to take hold of Bilbo, causing him to become protective and possessive of it. He narrowly escapes the mountain with his life and returns to the Shire a changed hobbit.
The movie ends on a cliffhanger as the Necromancer, a servant of the dark lord Sauron, is revealed to be regaining his power in the abandoned fortress of Dol Guldur.