The cliffhangers to Episodes One and Two of Horror of Fang Rock are some of the weakest seen in some time in the series. Episode One ends with a boat striking the rocks along the coast, with no immediate danger to anyone (at least, no one we've met on screen yet). Episode Two ends with Reuben screaming in the distance while the camera focuses on a baffled, more than terrified, Skinsale and Adelaide.
The ending for Episode Three more than makes up for these, though. At the end of this episode, The Doctor discovers the real body of Reuben and realizes that not only is the Reuben seen earlier in his room not actually Reuben, he is the alien in disguise. The Doctor then makes a dramatic confession: "Leela, I've made a dreadful mistake. I thought I'd locked the enemy out. Instead, I've locked the enemy in. With us."
This is a staggering admission for The Doctor to make, but one that needs saying as it is a rare thing, indeed, to see The Doctor make such a fundamental mistake. Yet he can't take too much of the blame, as even at this late stage, the alien has never been properly glimpsed, and his ability to shape shift has certainly never been made apparent. Tom Baker gives a monumental performance during this scene, the weight of his mistake showing all too well on his face. This is really tremendous television.