Disclaimer: I am not J.K. Rowling. I do not own Harry Potter.
Note: The following (alternate universe) sketch takes place on Hallowe'en, 1981. Severus Snape has requested an urgent one-on-one meeting with Albus Dumbledore, after being urgently summoned away from the Hogwarts Hallowe'en festivities earlier in the evening. Albus knows more than he's letting on, however...
Further Note: To be on the safe side this piece is rated 'M' and identified as 'Horror'.
"Severus?" Albus Dumbledore enquires.
"Lily wants a job at Hogwarts." Severus Snape says to Albus Dumbledore. "The Dark Lord spared her and dropped her off at my house."
"She does does she? She is still alive, then and this is not some inferius or polyjuiced imposter?" Albus quizzes, carefully.
It is getting close to midnight on October 31st, 1981, and Albus knows that Severus was called away from Hogwarts by an urgent summons of Lord Voldemort. And now Severus is reporting back.
"It was Lily." Severus says impatiently. "Although three years of Potter marriage and that brat she bore him have changed her, there is still enough of her left that I can recognise. And besides, she had the brat with her. I doubt any agent about nefarious business if the real Lily were dead or being counterfeited would drag a child around with her. Although why the Dark Lord spared the brat as well, I do not understand. She babbled something of Peter Pettigrew having been a spy, and the Dark Lord deciding that the prophecy was wrong, after all."
Albus Dumbledore knows exactly why the Dark Lord spared the former Lily Evans who later became Lily Potter. Albus Dumbledore, after all, has a device which puts lights out, but which Albus also adapted and 'tuned in' to Harry Potter and any events taking place around him at the hastily arranged christening by the adult Potters, at which Albus was one of the very few guests. Albus can use it to remotely monitor the sounds of everything taking place around Harry Potter – and Albus overheard every last word which was spoken in that room in Godric's Hollow earlier tonight, but he is curious as to just what Severus Snape now reveals of what he knows, what he guesses, and what he has been told?
"Peter Pettigrew?" Albus feigns to frown. "He was a member of the Order of the Phoenix, but he was not spying for the Order as far as I know."
"No." Severus says testily. "Pettigrew was spying on your precious Order, for the Dark Lord, it turns out, Lily said. The Potters made up some story about how they were going to hide with Sirius Black as their secret keeper, but picked Pettigrew instead, unaware that he had been selling your Order out for months. Pettigrew went straight to the Dark Lord with Lily's hiding place, but the Dark Lord loves drama, and decided to let the Potters settle in and feel comfortable, before going for them on Hallowe'en. Except," Severus frowns, "the Dark Lord killed James Potter, then decided that he was wrong about the prophecy, and that Pettigrew had tried to trick or trap him in some way with information about it he had given him. So he summoned Pettigrew, and killed him in front of Lily, and left her alive so that someone could take the tale of your humiliation back to you. The tale that you had for months been assuring people that you would protect them when – thanks to your own organization and to Pettigrew pointing things out – you had been doing the exact opposite."
"And you know all these things how Severus?" Albus asks.
"Because Lily has told me. Are you saying that she would lie or make these things up? What other reason would the Dark Lord have for leaving her alive?"
Albus can see several holes in the story; there would be things he would be doubtful over even without the information his eavesdropping on events in Godric's Hollow supplied to him. He studies Severus carefully, trying to decide if Severus is trying to deceive him? Severus is too much on edge, Albus decides. If Severus were trying to deceive Albus, he would sound calmer and more rational, Albus concludes.
Severus believes these things, and these are things he believes which Lily has told him. And Severus has always had something of a blind spot regarding Lily, viewing her as some sort of saintly goddess. Albus has taken advantage of that in the past, and now he suspects that Lord Voldemort and Lily herself are doing so too.
"Voldemort may have lied to her, but I must confess that I am quite at a loss to explain what else he may have been about." Albus says. Albus is an old and very experienced liar – good enough to deceive Severus at this time, when the man is worked up, and when Albus genuinely knows just why Lord Voldemort left Lily alive (and for that matter Harry too) but has no intention of explaining it to Severus. Or for that matter explaining why, of necessity, there was a death which it just happened that Lord Voldemort decided Peter Pettigrew was now suitably expendable to die to provide.
Anything Lily had said with the desperate fanaticism of a mother trying to protect a child to Lord Voldemort.
Something of Gryffindor Lord Voldemort had mused, before giving a cold laugh and summoning Peter Pettigrew and making a horcrux.
Albus will of course accept Lily Potter into Hogwarts, so that he knows exactly where she is and can keep an eye on her. At some point, she may perhaps try to assassinate Albus, or perhaps she will simply function as eyes and ears for Voldemort in the school. And Albus will collect what information he can, from her presence and actions, and try to work out how he is going to destroy her…
'Something of Gryffindor' – Albus already has a major clue right there, in fact. If Albus reads Lord Voldemort right, Lord Voldemort is or has been engaged in a process of making horcruxes out of people or objects representative of all of the Hogwarts founders. Where exactly Lily may fit in this suspected pattern is unclear, but now that Albus thinks about it, wasn't there some fuss about relics of the founders going missing back when old Hepzibah Smith was poisoned by a house-elf?
That was decades ago though, but there was a Magical Law Enforcement investigation into it at the insistence of the Smiths. Perhaps they have records – or better yet copies of memories – still from that time?...
And in the meantime, Albus will keep close the woman who is now for Lord Voldemort a walking, talking, living, wand-wielding horcrux.
It would be probably for the best if Severus does not know, though. Lord Voldemort clearly imagines he still has use for him, and thus Albus is not done with him either, yet.
Author Notes: (updated 2nd March, 2021)
I'm undecided on where the venue for this sketch is - obviously it is somewhere 'private'. Possibly it is in the headmaster's office at Hogwarts, or maybe somewhere else around the school.
Besides the 'deluminator' thing Albus is assumed (by me) to have had in this universe some other device (or maybe an additional function to the deluminator) which alerted him that some sort of crisis was taking place in the residence the Potters were at, so that Albus knew to excuse himself from the evening feast and to 'tune in'. He was in time to catch the whole of the Lily-Voldemort exchange and the manufacture (by the death of Peter Pettigrew) of Lily Potter as a living horcrux. (The deluminator thing is the device which canon Ron Weasley inherits from Albus in Harry Potter and the Deathly Hallows, and for the purposes of this story it already possesses at the very least the 'listen in on Harry Potter' function which it exhibits in that book.)
Lord Voldemort and Lily have both been lying to Severus Snape about what took place and why. Neither wants Severus to know that Lily is a horcrux now. They needed some kind of explanation though for why Lily and Harry were still alive.
Lily becoming a horcrux for him is assumed to be magically binding upon Lord Voldemort not to kill Harry Potter. Lord Voldemort figures that horcrux Lily is sufficiently useful as a spy and weapon at the moment that he can let Harry Potter live for a few years, for now, and maybe he was being too hasty about a prophecy he didn't know all of.
(The prophecy- or at least what Lord Voldemort knows of it - is likely identical to the canon 'The one with the power approaches' one, although the ending (which Lord Voldemort does not know when he attacks the Potters) might be different from the canon version.)
With Lord Voldemort having dispensed with Peter Pettigrew, and Severus' account as here in this piece (plus what Albus overheard on the deluminator) Sirius Black will not be going to Azkaban any time soon in this alternate universe. Peter Pettigrew has very clearly been identified as the spy and the traitor in the Order of the Phoenix, and summarily disposed of by Lord Voldemort having outlived his usefulness. (Horcrux Lily makes a much better spy and agent as far as Lord Voldemort is concerned.)
Remus and Sirius will likely attribute any odd behaviour of Lily that they notice to her being a traumatised woman and grieving widow.
This piece is a one-shot.