Madison Paige visits the club to interrogate Paco after finding out he is the one who rented the apartment in which one of the trials for Ethan Mars took place. Madison gets his attention by making herself more seductive, which includes unbuttoning the top few buttons of her shirt, applying lipstick and eyeliner, mussing her hair, and ripping her skirt to make it shorter. The player must then successfully guide Madison through some dance moves. Paco will have a bouncer call Madison over, and she will then suggest that the two go somewhere more private, intending to interrogate him at gunpoint. However, Paco quickly tells Madison to undress, after which she loses her nerve and intends to leave. Paco then pulls a gun on her, forcing her to strip, as she cannot reach her purse where she has hidden her gun.
Depending on player actions, Madison can strip down to her panties, or stop stripping fairly early on, depending on whether the player listens to her thoughts about knocking Paco out with a lamp. Either way, she will eventually use the lamp and restrain Paco with duct tape to interrogate him. When he regains consciousness, she manhandles him to find out who was using the apartment he rented. During the interrogation, a bodyguard will knock on the door to check on Paco, but no matter what action the player takes (including taking no action), Madison will successfully deter his curiosity and return to questioning Paco, who reveals the apartment was rented to John Sheppard. She leaves Paco taped to the chair and makes a quick getaway (though she will not actually be caught regardless of how slowly she leaves).
Norman Jayden also visits the club to interrogate Paco, if he is still alive. Madison will walk past him, if she is still alive. He will go to Paco's office on the trail of the Origami Killer. However, before he makes it to the office, a cutscene shows Paco being shot point-blank in the head by someone he is acquainted with. When Norman walks in, he finds Paco dead and is attacked by the killer. Norman can die during this fight. If he survives, he discovers several vital clues about the Origami Killer in the office using ARI. He will also find clues about Madison. He then leaves the club.
If Madison is killed before this chapter, the intro will change: it pans around the club, and Madison will not walk past Norman in the intro. Also, the clues involving Madison in Paco's office will not be displayed.
- Concept art found in the "Bonus" section of the Extras menu of the game reveals that the nightclub was once called the "Black Lagoon," possibly a reference to the film Creature from the Black Lagoon.
- Ethan Mars is the only main character who never visits the Blue Lagoon.
- If Madison gets killed before this, it will show the entrance for Norman Jayden instead, but Paco still dies regardless.
- If both Madison and Jayden die before their respective Blue Lagoon chapters, the club will not appear at all and no further mention of or reference to it will be made.
- When walking up to Paco's office as Jayden, if the player quickly makes it up to Paco before he is shot, Paco won't have a bullet hole in him.
- The name might be a reference to the Blue Oyster Bar from Police Academy.
- There is a playlist on YouTube of all of the music that can be heard in the Blue Lagoon.