The next confrontation was public, held on August 25 in a congressional hearing room in Washington. Public interest in the case gave it a circus atmosphere. The packed conference room was jammed with spectators, radio broadcasters, film cameramen and even hookups for live television. At this point Nixon and HUAC appeared openly hostile to Hiss. 'You are a remarkable and agile young man, Mr. Hiss,' said one member of the committee after Hiss answered evasively about the fate of his Ford automobile.

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Two days later Chambers appeared on the radio program Meet the Press and declared, 'Alger Hiss was a Communist and may be now.' A month later Hiss filed suit for damages. 'I welcome Alger Hiss's daring suit,' Chambers said. 'I do not minimize the ferocity or the ingenuity of the forces that are working through him.'

As Hiss's suit prepared to go to trial, the case took a new, even more serious turn. It changed the main issue from whether Alger Hiss was a Communist to whether he was a spy.

In his earlier statements before HUAC, Chambers denied being involved with espionage. His contacts in Washington acted only to influence government policy, not to subvert it, he had said. It was the same story he later told the Justice Department grand jury. But when facing pretrial examinations for the libel suit, Chambers changed his story. He told his lawyers that he could produce evidence that Hiss had given him government materials. When he had broken with the Communist Party 10 years earlier, Chambers said, he had saved some documents in case he needed to protect himself from retribution. He sealed the documents in an envelope and gave them to his wife's nephew, Nathan Levine. Levine hid the envelope in his parents' Brooklyn home.

Retrieved from a dusty dumbwaiter shaft, the materials turned out to include 65 pages of typewritten copies of confidential documents (all except one from the State Department), four scraps of paper with Hiss's handwritten notes on them, two strips of developed microfilm of State Department documents, three rolls of undeveloped microfilm, and several pages of handwritten notes. All dated from the early months of 1938. Chambers turned over most of the evidence but initially held the microfilm back in reserve. Fearing the federal grand jury would indict him for perjury, Chambers finally handed over the microfilm to HUAC. With a flourish of cloak-and-dagger dramatics, he had hidden it in a hollowed out pumpkin on his Maryland farm.

The so-called 'pumpkin papers' ratcheted interest in the case up another level. Nixon immediately flew home from a vacation cruise in the Caribbean and posed for newspaper photographs showing him peering intently through a magnifying glass at the microfilm strips. The next day Nixon received a shock when an official at Eastman Kodak said the film stock dated from 1945–meaning Chambers had lied when he said he had hidden the film in 1938. Shaken, Nixon phoned Chambers and angrily demanded an explanation. It turned out that none was needed. The Eastman Kodak source called back and corrected himself. The film stock dated from 1937.

Hiss, who also testified before the grand jury, claimed the materials were either fakes or had come from someone else. The grand jury thought otherwise and on December 15, 1948, it indicted Hiss for perjury, accusing him of lying when he said he had never given State Department or other government documents to Chambers and that he had had no contact with Chambers after January 1, 1937. Espionage charges were not possible because the three-year statute of limitations had expired.

The trial began at the Federal Building on Foley Square in New York City, on May 31, 1949, and lasted for six weeks. The prosecution emphasized its 'three solid witnesses'–a Woodstock typewriter once owned by Alger and Patricia Hiss, the typed copies, and the State Department originals–as 'uncontradicted facts.' According to Chambers, Hiss took documents home from his office so his wife could type copies on the Woodstock. Hiss then returned the originals to his office and gave Chambers the copies. Chambers had the copies photographed for his Soviet handlers.

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