Nick wakes up early with an eerie feeling that something bad will happen to Gatsby. When he arrives at Gatsby's mansion, he finds his friend tired, and leaning against a table in the hall. Nick notes that "Gatsby's mansion had never before seemed so enormous to him".
Nick gives Gatsby the advice, that he should go into hiding for some time, because it's sure that "they" will be able to trace down his car, and eventually find him, but Gatsby refuses to leave West Egg, fearing what could happen to Daisy.
Gatsby starts telling Nick about his past, about him and Daisy. She was the first "nice girl" that Gatsby had ever met. He had known other girls, but always felt like there was some distance between them and himself. The young officer had no real foundation to stand on, he was penniless, had no family/background, and was at the mercy of a government that at any moment could decide to station him anywhere in the world. Despite this, he "took" her (made love with her), and later blamed himself for giving Daisy a false sense of security (he lied to her). He loved Daisy, he hadn't known a girl like her before, and despite their differences, she loved him too.
He was successful during the war, and was promoted from his previous position as captain, to commander of the divisional machineguns. After the war he was sent to Oxford, and Daisy, who lived in her "artificial world" didn't understand why he wouldn't come home, and started dating other men after a while. She met Tom Buchanan, who's social position made an impression on Daisy's parents. Daisy and Tom got married, and when Gatsby returned from France he made a "miserable but irresistible" journey to Lousiville. Gatsby goes on describing the time with Daisy, and the flashback ends. Nick leaves Gatsby's Mansion, shouting at Gatsby: "They're a rotten crowd, you're worth the whole damn bunch put together". Nick feels glad that he gave Gatsby that compliment, because