1966: Freddy is arrested for the murders of twenty neighborhood children. A confession from young Kathryn regarding her mother's disappearance prompted police action. Kathryn is placed in the care of adoption services after Freddy's arrest.
1967: The Burroughs family adopts Kathryn, gives her a new name, and moves her away from Springwood. Her records are subsequently sealed to conceal her true identity.
1968: Freddy Krueger's high profile trial begins and is cut short when it's revealed the search warrant to obtain evidence was not signed correctly. Trial evidence is deemed inadmissible and Krueger is released. Later that night, outraged and grieving neighborhood parents form a mob and track Freddy to his boiler room lair. The mob encircles the lair, pouring gasoline around the boiler room and igniting it. In addition, Molotov cocktails are thrown through the lair's windows - setting its interior ablaze. The mob stands motionless until Krueger perishes in the conflagration.
While the flames surround him, Freddy is approached by three dream demons. These demons roam the land of the living until they find the most evil soul, and in turn, give them the power to turn dreams into reality. Krueger accepts their offer to "be forever" as the flames consume him.
The parents involved with Krueger's death agree to keep the incident secret and help erase his existence. Krueger's remains are taken to Penny Bros. Auto Salvage and hid in the trunk of an old red Cadillac. Officer Donald Thompson moves his family into the house at 1428 Elm Street. With Kathryn Krueger already gone from Springwood, all loose ends are tied up.
Amanda Krueger, who had been following Fred's trial, hears of his release and hangs herself in the tower where she was raped. Afterward, her body is sealed in the condemned tower and a memorial stone is placed in the Springwood cemetery for Amanda Krueger, her name in Christ: Sister Mary Helena.