In the week before Christmas, an administrator asks Kelly to give a speech praising Dr. Monahan, which leaves her in a dilemma, knowing his true nature. Meanwhile, Donna reacts to Noah's lack of Christmas spirit due to his history. Carly's son, Zack, questions the existence of Santa Claus, and Steve sets out to prove that he's real, with a little help from Nat. At David's urging, a depressed Ben delivers gifts to his parents, and later he and Valerie help out a suicidal Ben. Emma refuses to back off from flirting with Brandon, and gives him a valuable watch as a Christmas present; he finally gives into her charms and has sex with her.

Carly and Zack temporarily move in with Donna at the beachfront apartment after they are evicted from their house, which was needed earthquake retrofitting. Carly gives Donna advice on her love life as Donna questions whether or not to sleep with Noah. Meanwhile, Dr. Monahan angrily confronts Kelly about her sexual harassment charge against him. David finally admits to Donna that his relationship with Valerie is a farce, but that soon changes when Valerie admits to developing feelings for him again. After Emma quits her job at Brandon's newspaper agency, she puts pressure on him. Brandon is determined to hide their Christmas fling at any cost, and Brandon hires a new writer, Janet Sosna, as Emma's replacement. Valerie as a run-in with Duke, Brandon's former bookmaker, who she tells to stay away from the Peach Pit After Dark, until he offers her a cut of his winnings. Elsewhere, Steve and Brandon rescue David from his carwash job by offering him another job as a music critic for their paper. Zack unknowingly draws on Donna's design sketches just before her meeting with a new potential employer.

Kelly turns to Brandon for help to write an article when the Wyatt medical clinic's budget is cut drastically. So, Brandon asks the gang to hold a fund raiser at the After Dark for the Wyatt Clinic. Meanwhile, Valerie decides to finally tell the truth about her father's motive for his suicide to her visiting mother, Abby, only to meet her young fiancée Carl, whom Valerie doesn't approve of. When Valerie finally tells her mother about the history of her father molesting her, Abby shocks Valerie by saying that she already knew. With a little of Donna's help, Noah achieves peace with his estranged father, which turns out to be short-lived. Also, Sophie shares her plans to success in show business with David, while Steve continues to be oblivious to Sophie's true devious colors and her greedy and ruthless intentions.