Brandon has trouble coping with Josh's sudden death in a car accident, which is a challenge to his political position when he's forced to fill Josh's shoes. Meanwhile, Donna finds a new man for herself, a KEG member named Griffin Stone, who her mother wants her to date. David meets Clare for the first time, and they, too, become close. Also, Valerie continues pursuing Dylan, who lays out ground rules that their clandestine relationship is based purely on sex, while Valerie continues her "good girl" charade in front of Steve and everyone else.

Kelly's senses alert her to be suspicious of Valerie's true unwholesome colors when she catches her smoking pot and she naturally makes a big fuss about it. But to Kelly's surprise, she cannot get a sympathetic ear. Steve refuses to believe Kelly, thinking that she's just jealous. Even Brandon is skeptic and tells Kelly to give Valerie the benefit of a doubt. However, Donna doesn't seem to care and tells Kelly that what Valerie does in her spare time is none of their business. Later when Kelly sees Valerie at the Peach Pit drinking and flirting with Dylan, she immediately tells Steve. But when then both confront her, Valerie (a true master of manipulation) convinces Steve (but not Kelly) that it was Dylan who made a pass at HER. All in the meantime, Valerie begins to grow suspicions of Dylan's cash-flow state when she discovers him stealing money from the Peach Pit to support himself. Meanwhile, Steve decides to revitalize the Peach Pit by throwing a rave party to boost business. While working on a video project with David and Clare, Donna meets a musician and carpenter named Ray Pruit. Also, Andrea juggles college and child care.

Brandon, now the new student body president of CU, has his first challenge when he is pressed into action by some human-rights activist students who are against the chancellor's friend Quintaro, a visiting Asian dignitary from a fictitious South-East Asian country of Selanesia, who is accused of human-rights violations which puts Brandon at odds with both Clare and Chancellor Arnold. Meanwhile, Valerie helps Steve, Kelly, and fellow KEG members Griffin and Muntz, plan the theft of a rival college's mascot, a huge stuffed bear, during homecoming weekend. Donna skips the caper to spend some time with Ray at his family's pumpkin stand. Also, Andrea is depressed when Jesse is spending more time studying and bar tending than being with her. Andrea then meets a mysterious guy, named Peter, at her local laundromat. Elsewhere, Dylan forces Valerie to keep his financial situation a secret. But when Valerie later walks in on Dylan cheating on her with a local prostitute, she vows revenge.

Kelly's disapproval of her mother's return to modeling increases when she learns that her baby sister Erin is involved. Meanwhile, the Walshes finally learn that Dylan is broke when the proposed Peach Pit expansion leads to an exposure of his finances. Valerie, still smearing with both anger and pity after catching Dylan cheating on her, confirms to them that Dylan is bankrupt. Jim then offers Dylan financial assistance. But the growingly misanthropic Dylan is too far gone to accept any sympathy and rudely blows off Jim. While Donna has trouble balancing the affections of both Griffin and Ray, she sees Griffin's sleazy other side when he whisks her away for an overnight trip to Catalina Island and attempts to seduce her. David's love experiment by handcuffing himself to Clare's bed to win her affections backfires when her father shows up and takes her out to dinner, leaving David alone. The next morning, when Steve and David come over to Dylan's house to talk about the Peach Pit After Dark expansion, they find Valerie in bed with Dylan. Steve, being the person he is, draws the wrong conclusion and responds by punching Dylan in the face.

On Halloween night, Donna becomes scared when her two suitors, Ray and Griffin, finally cross paths during a costume party at the KEG house. After being shunned by the Walshes and the rest of the gang, Valerie considers moving back to Buffalo, but decides to stay after learning that her mother has suffered a nervous breakdown. Steve unfairly blames Dylan for having a tryst with Valerie, and breaks his business agreement with the Peach Pit After Dark. Valerie also fails to bewitch Dylan who's sinking deeper into depravity with hard drugs, while Brandon reacts coldly towards Valerie after finding out that she skipped out on Steve's frat party to be with Dylan after she promised everyone to stay away from him. Meanwhile, Andrea's not pleased to see the cross necklace her baby daughter Hannah receives at a Day of the Dead celebration. Also, Clare talks David into a UFO hunt for the night in the desert near Barstow, CA.

Emily flies back from Paris to attend a seminar at La Jolla. She asks Brandon to meet her at the airport, claiming to have just a four-hour layover. She actually has a week until the beginning of her seminar, but Brandon breaks her heart by revealing that he is dating Kelly. When he sees her back to her hotel room, they share a passionate kiss. Steve and Griffin organize a holiday rave at an abandoned house. Valerie helps them out in the hopes of getting back in Steve's good graces. David and Clare accidentally post the notice about the event on a computer bulletin board for lesbians, who constitute most of the guests. The house has very poor wiring and continually blows fuses. Griffin uses too much electricity, and the house catches on fire. Ray rescues Steve and Valerie, who were fooling around in one of the bedrooms. Kelly and a girl named Allison are trapped in a downstairs bathroom with no means of escape. The firefighters try to reach them as they are engulfed by flames.

In the aftermath of the house fire, Kelly suffers second and third degree burns on right wrist, ear, and the whole right side of her neck. Allison's injuries are much more severe, but she maintains a positive attitude. Brandon is racked with guilt because of his feelings for Emily. Kelly does not react well when she learns that Emily is still in town. She calls Dylan to discuss her insecurities and Brandon visits him in search of advice. Kelly believes that Brandon is only staying with her out of guilt, but Emily eases her mind when she reveals that he expressed his love for Kelly before the fire. Meanwhile, Steve feels guilty for the house fire and calls upon his father, Rush, to help out. Griffin's father hires an accomplished attorney for Steve and Griffin where Rush advices both to plead guilty to criminal trespassing in order to avoid jail time. Steve and Griffin receive two years of probation and community service... and are forbidden from operating dance clubs or parties for two years. Steve is furious to learn of this provision, especially after he discovers that Griffin in fact stole the keys from his father's real estate office to the house, rather than obtaining permission to use it for the rave. Steve tells his father that he didn't know about what Griffin did, but Rush (being more arrogant and narrow-minded) refuses to believe Steve and tells him not to ever call on him again for help. Afterwards, Steve physically attacks Griffin and orders him to leave the fraternity. Elsewhere, Ray's perpetual bad mood confuses Donna. He explains that his mother always begins drinking around the holidays, as his drunkard father left her on Christmas... after pushing her down the stairs and causing her to have a miscarriage. Andrea and Jesse throw a party for Hannah's first Hanukkah. Jesse obtains work as an attorney for those who cannot afford representation. He is frustrated by the court treatment of a single Mexican immigrant father, whose kids are taken away when a babysitter neglects them. At the end, Dylan comes home from rehab and is greeted by a letter from a stranger who found Erica's bathroom note pleading for his help.