Disclaimer: Harry Potter and all its characters are owned by J. K. Rowling.
There is a reason Lily Evans was considered the smartest witch to grace the halls of Hogwarts. Even after marriage, when she became Lily Potter, and now with the threat to her and James' son, Harry, did she continue to prove that.
Upon hearing from Dumbledore about Voldemort's unhealthy interest in their baby, and as suggested by him, they had gone into hiding under the Fidelius Charm with Sirius as their Secret Keeper initially.
For those who don't know, the Fidelius Charm is a complicated magic that hides the secret of the location of a house within the soul of a person who has been magically designated as the Secret Keeper. Unless the Secret Keeper gives the secret of the location himself either verbally or by writing it on a piece of parchment, no one can find the house and anyone who has been given the secret cannot divulge it verbally because they are not the actual Secret Keeper.
The Potters, later on, changed the Secret Keeper to Pettigrew with Sirius being the decoy. This could have resulted in the deaths of the Potters had it not been for Lily's planning.
More on Lily's planning later. Let me tell you why Lily had to make plans in the first place.
She had observed Pettigrew while growing up and noticed the flashes of jealousy that would cross his face when his friends received praise and the perverse satisfaction when something went wrong sometimes due to his absence. He would hide his expressions pretty quickly, but she had noticed it a few times.
She had also recently begun suspecting him of being a Death Eater. You see, several times, Pettigrew had to urgently leave their house when he had slightly flinched with his left hand jerking as if in sudden pain, (the left hand is where Voldemort's Dark Mark was always branded and was usually hidden by Glamour charms) and unconsciously, his other hand would almost creep towards it before he stopped himself. Lily had caught this a number of times.
Another tidbit - Each Dark Mark of the Death Eaters was connected to Voldemort through a Protean Charm and a Tracking Charm. A Protean Charm (which is usually placed on non-living objects) works in a way that if you press one mark, all other marks heat up. So, you can imagine that a Death Eater would feel the pain from his Mark burning when their Master summoned his followers.
Knowing that James and Sirius would not easily believe Lily nor would they have let her dissuade them from changing the Secret Keeper, without a solid reason, which would have put Pettigrew on alert if he thought Lily suspected him, she decided to approach the only person she could think of at that time - Remus Lupin.
She had Peter write the secret of the home to give to Remus, and then immediately Obliviated Peter of the memory.
A thing to bring to everyone's attention is that James and Sirius had begun to wrongly suspect Remus of being the spy because he is a werewolf which is why they had made excuses not to give him the secret of the house.
That day, Peter went back to his hideout, thinking that he had dozed off at the Potters' place after discussing the subject of Animagi with her.
After all, Obliviation Charms are a child's play for a prodigy like Lily who was studying for Charms Mastery under Professor Flitwick before they had to go into hiding.
For those who are new - an Animagus is a person who can turn into a particular animal or bird or insect at will. One person can have only one distinct form. James, Sirius, and Peter had become Animagi during school days to give Remus, company during the full moon nights. Lily had called Peter to their home citing that if she could learn to be one, it would be immensely useful.
One day, while James was visiting Sirius at his hideout, she called Remus for a visit, having sent him the secret of their home through a nondescript-looking owl which she had James purchase recently. This owl wasn't known to anybody and thus was safe to use.
After she had served tea and scones, she spoke, "Remus, tell me -"
"Finally! Out with it! What was so urgent and secretive that you called me while your husband was away?" asked Remus in jest.
Lily almost smiled but on remembering the topic at hand, she became serious again.
"If you see a person whose left hand jerks, and he unconsciously reaches for it and then leaves, citing some urgent business or another excuse, what would you make of this person, Remus?" asked Lily quietly.
This was quite unexpected for him.
"I would say that it's a Death Eater in disguise or a person who you don't know is actually a Death Eater," said Remus. "Why do you say so? Have you seen somebody behaving like that?" he asked worriedly.
"Yes, and it would be a bitter truth to swallow for you, James and Sirius," said Lily sadly.
"You suspect Peter?" asked Remus incredulously having observed that she had not included his name in the group of friends. "Why would you suspect that he of all people would become a Death Eater? What skills does he have to show?"
She said, "Observant as usual, Remus but your low opinion of him actually lends credence to why he would join the Death Eater ranks."
When Remus made to interrupt, she held up one hand stopping him, and continued, "You yourself said that he has no skills even though he has the ability to turn into a rat, his Animagus form. That alone shows that he is a wizard with above-average magical powers because learning to be an Animagus requires magical discipline. He was the one whom you guys usually had as a lookout for while doing your pranks too. No one has valued him much though nor involved him in important things. He hasn't earned any respect from his own friends. He is known more as a sidekick and, someone to merely pass the time away with. You never utilized his Animagus skills in war. Even Dumbledore never asks him for his opinion. It's as if he is a dormant and useless member of the Order of Phoenix."
Lily took a pause there to take another sip of her still-hot tea, thanks to the Warming Charm.
"If you had taken care to involve him more, then it would have given him some sense of accomplishment, it would have shown him that you value him, that you cared about him and he would not have turned to the Dark to gain the recognition which he never got from his own friends!"
Forcing herself to take a deep breath to calm herself, she continued, "Whether it was this and his desire to prove himself to everyone who treated him as a joke or if it was out of fear, I cannot say definitely, though I strongly feel it's more of the former. I have been observing him since school, the flashes of jealousy when the others were praised, the pleasure in some failures of his friends when he was not involved in those pranks, and now recently, the obvious signs that his left hand carries the Dark Mark."
Remus sighed. He had, of course, seen the signs in school but ignored them, thinking that Peter would grow out of it but what Lily stated saddened him and brought on, an immense amount of guilt at how much they had failed Peter.
He didn't doubt Lily's latest observations though he desperately hoped that she was wrong. In the deepest part of his heart though, he knew that Lily was right. They had all failed their friend and now, may have lost him completely to the Dark.
"What do you need me to do?" asked Remus at last, raising his head and looking into her eyes steadily.
Lily heaved a sigh of relief.
Annnnd, there you have it, fellas - The first chapter of my new fanfic. Hope you guys like it. Expect the next chapter within a week max, sooner if possible.