Steve is bothered by the appearance of his old nemesis, Chuck Wilson, the former child actor who starred in the TV series Hartley House with Steve's mother, Samantha. Samantha is anxious to appear in a reunion TV show that will only happen if Chuckie will sign the contract. When Chuckie and Steve get in a fist fight at school Chuckie uses this fact to blackmail Steve into taking the fall and excepting suspension. Things get even more tense when Chuckie reveals that he knew of Steve's adoption even before Steve did. Meanwhile, Donna finally agrees to go to the annual winter dance with David, regardless of the teasing she gets from her friends for dating the geeky sophomore.

Steve arrives in Albuquerque, New Mexico and tracks down his grandfather, Al Brown, a diner owner. Al explains that his daughter gave up Steve because she was very young and wanted him to have a good home. He sadly reveals that Karen Brown died in a car accident many years ago. Steve leaves flowers at her grave, and convinces an eccentric Santa-like charter pilot to fly him home for Christmas. Back in California, Cindy is depressed about her first Christmas in Beverly Hills. She invites the kids' friends and their families for Christmas Eve dinner, but everyone has other plans. Brandon visits Emily in a psychiatric hospital, where she is doing very well. Meanwhile, Brenda begins work at an upscale clothing store. A mysterious old man steals a Santa Claus suit from Nat at the Peach Pit, and later shows up at the boutique store where Brenda works. She feels bad when her brass boss throws out the cheerful old man. After work, Brenda stops the police from harassing the old derelict wearing the Santa suite and invites him over for dinner, much to the wariness of Jim and Cindy. Also, Dylan goes to see his father in prison, and talks with the same Santa. Elsewhere, Kelly's mother, Jackie, is furious when David's father, Mel, backs out of Christmas Eve plans because his estranged wife asked him to come over with David. Samantha, Kelly, Jackie, Andrea, David, Mel, Donna, Dylan, and Steve all show up at the Walsh house for dinner and caroling. The old man in the Santa suite gives everyone presents and describes his lonely life: his children are grown and his wife died a year earlier. He thanks Brenda for her kindness and generosity, then mysteriously disappears as footsteps are heard on the roof.

A rainy Thanksgiving brings uneasy get togetherness when Brandon brings over Jack Canner, the homeless man he tried to help out the previous summer, after Nikki leaves town to visit her parents in San Francisco. Meanwhile, Steve, now expelled from school, joins his mother for a TV shoot in Santa Barbara to some time break his bad news to her. But Samantha Sanders actually sticks up for Steve and gets him conditionally readmitted to West Beverly. Also, Dylan brings his father home for Thanksgiving and must cope with his presence and his new girlfriend Christine.

Carl hosts Steve's weekend long 21st birthday bash on the ship Queen Mary in Long Beach, where the music group "The Goo Goo Dolls" entertains. Carl then asks Steve a favor: to have a chance with Clare who he has had a crush on. David and Donna grow more intimate while their producer Erik, makes a move on Donna and other women as well. Andrea Zuckerman arrives in town to have fun at Steve's party, and Nat brings Joan along who keeps feeling unwell. Meanwhile, Valerie hires an FBI agent, named Richard Ballen, to find Colin who's in the area trying to get access on a ship to take him to South America. Also, Susan tells Brandon that she has decided to leave town to accept a job offer at a newspaper company in Washington D.C. which makes him wonder if he has a future with Susan after all.

Valerie and Kelly are reluctantly paired in a Christmas gift exchange, where Valerie goes shopping with Tracy to find the certain gift. Kelly gets a big surprise when she meets Joy, a half-sister from her father that she never knew existed. Meanwhile, Steve and Clare find themselves playing holiday matchmakers to his mother and her father during a Christmas faculty party. Also, David tries to get on the good side of Donna's conservative and domineering mother, Felice, who offends everyone again. Elsewhere, Brandon and Tracy share their exchange of gifts.

Donna's stalker, who is finally revealed to be a disturbed TV station worker, named Evan, takes her, Brandon, Tracy and a group of other people hostage in the campus TV station, where Brandon tries to calm down everyone's heightened tensions as Donna sits in front of the running cameras with a gun to her head. Meanwhile, Steve and Clare travel with their parents to a getaway in San Diego where they try to cool down the burgeoning romance between them. Also, Tom and Kelly's attraction between each other increases and David finds himself drawn to Chloe Davis, a aspiring singer determined to make it big.

David takes Donna on a one-night trip to New Orleans in an attempt to sleep with her, which also delays Donna's presentation of her business project the very next day to her stern teacher, Professor Langley. In Beverly Hills, the relationship between Steve's mother and Clare's father becomes strained during a TV historical awards dinner, when Steve's self-obsessed mother once again lets success go to her head, which also strains the relationship between him and Clare. Meanwhile, Brandon attempts to nurse a flu-stricken Kelly and Valerie back to health, who re-live to each other how they became hard-core enemies two years ago which involved both of them pursuing Brandon. At the end, Valerie secretly meets with a certain Derrick Driscoll, who works for Kelly's father, to ask about a possible investment plan.

Dylan McKay arrives back in town and tries to help everyone with their share of problems as he tries to explain to Kelly why he had decided to come back to Beverly Hills. David hires Matt as his lawyer as he deals with the situation with Denise after her wealthy and powerful conservative parents have him arrested and charged with statutory rape. But Matt has his share of problems financially when his lack of clients prevent him from making his rent and business payments. Meanwhile, Steve's visiting mother, Samantha, angrily tells him that she doesn't like his newspaper's tabloid slant, while Steve counters with his unhappiness over her dating a much younger new suitor. Gina (whom is revealed here to be even more twisted and deranged than Valerie, Sophie or any other woman) sets out to prevent Noah and Donna from reconciling so she can have Noah all for herself. Also, Kelly and her mother, Jackie, clash over her ailing grandfather's wishes to die in peace.

Kelly is called on to make a life-or-death decision for her emphysema-stricken grandfather, whether or not to put him on life support. Matt is hired to defend a tobacco company in a civil suit, causing Kelly to be defense over her dying grandfather issue. Meanwhile, Steve wrestles with his thoughts as news about his mother's lesbian romance spreads. Dylan takes his Porsche out of storage in an attempt to kickstart his life again, but experiences recurring nightmares involving the death of Toni years ago. Gina gives up trying to break Noah and Donna up and turns her sights on Dylan. Donna befriends a female gang member, Sonia, who cannot leave the gang she's in.