The gang was taken to a balcony where they saw Kaiba waiting for Pegasus. Pegasus arrived and started taunting Kaiba, but Kaiba didn't listen because he was here to save Mokuba and that nothing else mattered. Pegasus then pointed out that thy had an audience. Kaiba looked up and saw Yugi. He was shocked, but not suprised that Yugi had gotten enough starchips to enter the castle. Pegasus was also pleased that Yugi had passed all his tests. Kaiba challenged Pegasus to a duel using his Duel Disk system. Pegasus played around with it and told Kaiba it wouldn't be fair because he didn't even know how to use it. Pegasus then agreed to use the system as long as another played could play the cards for him. Kaiba was confused until two guards brought in Mokuba. Pegasus told Kaiba that Mokuba(souless) would duel in his place. The gang was shocked to learn that Kaiba wasn't only fighting to save his brother, but his brother's soul as well. Yugi now realised why Kaiba wanted to win their duel so badly. Pegasus then warned Kaiba that if he lost this battle, his soul would be Pegasus's too. Kaiba refused to duel his brother, so the two dueled with the duelling arena.
The room changed and a duelling arena descended. Yugi warned Kaiba that he must trust in the heart of the cards and that he should be wary of Pegasus's Millenium Eye. Kaiba just ignored him. Pegasus started the duel by setting a monster and playing a card face down. Kaiba summoned Rude Kaiser and set a card. Rude Kaiser attacked the face down monster(Toon Alligator) and destroyed it.
Pegasus then summoned Parrot Dragon and attacked with it. Kaiba activated Mesmeric Control to reduce Parrot Dragon's attack by 800. Parrot Dragon was destroyed. Kaiba was wondering if Pegasus could know what he was going to do before he did it. Kaiba then decided to quickly finish the duel by summoing his Blue-Eyes but as he was about to summon it, Pegasus activated Prophecy. Prophecy allowed him to guess whther the monster Kaiba was about to play had an attack higher than 2000 or not. Pegasus correctly guessed and he also added that the card was Blue-Eyes White Dragon. Pegasus then got to keep Kaiba's Blue-Eyes in his own hand. Pegasus set a trap card during his turn. He had used his Millenium Eye to see Kaiba's combo, Saggi the Dark Clown and the Crush Card Virus. Kaiba summoned Saggi the Dark Clown in attack mode and set the Crush Card Virus. Pegasus activated Negative Energy, doubling Saggi's attack. Saggi was then not able to use the virus. Pegasus then summoned Dark Rabbit and destroyed Kaiba's clown(Kaiba's LP:1000).