The day after New Years Day, Clare arrives at Casa Walsh from her Christmas stay with her father in San Diego and listens to the gangs New Years Eve mishap stories which include: Steve babysitting for his two rowdy teenage step-brothers, Ryan and Austin, whom sneak into the After Dark for some rowdy partying. David and Joe skip out on the After Dark party to help Donna peruse her escaped parrot. At the same time, the stress between Kelly and Colin over his drug use escalates to a point of him having Valerie hide his cocaine stash for him. Also, Susan's ex-boyfriend, Jonathan Casten, arrives in town which discourages Brandon when he learns Jonathan's true colors that he wants Susan back for himself.

At a frat party Steve hosts at Casa Walsh, things take a turn for the worse when Steve's two teenage half-brothers, Ryan and Austin, start drinking excessively in which Ryan passes out and almost dies from alcohol poisoning. When Rush finds out, being arrogant and narrow-minded as usual, naturally blames Steve for the near-disaster. Valerie brings Colin to the party, who's between incarcerations. Meanwhile, Tara gets out of rehab and moves in with Kelly, Donna and Clare at the beach front apartment. Also, Kelly invites Greg, a med-student from the rehab center, over to the party and whom ends up saving Ryan's life.

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.

At a reunion party at the Beverly Hills Beach Club, Clare is stunned after she learns of Steve's past relationship with Kelly, who learns there's more to the story than she knew. Meanwhile, Kenny puts a social spin on his business with Valerie, who once again throws romantic common sense to the wind. David's new friend, Mark Reese, needles Brandon into joining the college TV station. Donna meets an old high school friend whom she once has a crush on. Also, Steve's annoying stepbrothers, Ryan and Austin, return and learn another hard lesson in finding girls.

On the day before commencement, Kelly becomes determined to oust Valerie from the Walsh house (and town) and pressures Brandon to do so. Meanwhile, Donna decides it's time to move up to a new level of romance with David after getting advice from her grandmother. Steve plans to pull the "best senior prank ever" with some help from his frat brother Muntz, as well as David.

On the day of graduation, a broke and lonely Valerie disrupts Kelly's plans when she takes off on a mindless spree causing Brandon to delay the ceremony to look for her. Kelly's father, Bill, throws a 1920s nostalgic post-graduation party for the class and has the The Cardigans band perform. He also tries to make up with Kelly, who continues to push him away. Steve's stepbrothers, Ryan and Austin, show up for festivities where Ryan is drawn to Kelly's half-sister, Joy. Also, Steve's plans for Clare derail due to her decision to move to Paris with Chancellor Arnold, which leads to Steve and Clare breaking up for good.