Alison clashes with a man in her group meeting, NFL quarterback Terry Parsons. When Billy fails to show for a meeting featuring loved ones, Alison sneaks out to a bar and gets hammered. Terry helps her get sober and explains his earlier behavior. Billy is outraged when he learns that Susan failed to tell him about Alison's meeting. He lights into her, prompting Susan to move out. Peter displays increasingly controlling behavior toward Amanda. Jane sends a note and flowers from Michael back to the beach house, and Kimberly threatens to divorce him. The baby becomes very ill and is raced to the hospital. Michael refuses to return the child to Jo, even after a blood test proves she is the mother. Jeffrey is livid when Matt reveals his HIV positive status to the neighbors (to explain Jeffrey's panic over a bleeding cut). Jake breaks up with Sydney after learning that she slept with Chris.

Amanda is forced to confront her Scrooge-like behavior when Bruce appears to her in a dream and leads her in a version of The Christmas Carol. He encourages her to break free of the hold that Peter has over her. She visits Alison at the rehab center to apologize, and ensures that Bruce's children are financially secure. Terry becomes jealous after seeing Billy and Alison together, and admits his own feelings for her. Matt and Jo tell Peter that Kimberly has stolen her baby. Peter orders Michael to return the child to Jo. Kimberly goes ballistic and tries to throw herself in the ocean. After Michael saves her, she calls Mrs. Carter to tell her that her grandson is alive. Jeffrey breaks up with Matt because he needs time alone to cope with his illness. Jane convinces Syd to come home for the holidays.

Peter hires an efficiency expert named Caitlin Mills, who proves to be a headache for Amanda. Alison neglects Billy as her romance with Terry blossoms. Michael, prompted to investigate by Amanda, learns that Peter has been padding his income through a phony research project. Billy discovers that Peter and Caitlin are romantically involved. Jo hires an Englishwoman named Emily Baldwin as her son's nanny. Jo names her son Austin, and plans to move back to New York. Emily offers Jo a ride to the airport, then drives off with the baby.

Jake and Jo see the Carters arrive at the cabin with Emily and the baby. While Jake is calling the police, Jo disobeys his wishes and confronts the Carters. Mr. Carter shoots her in the back. Mrs. Carter sneaks into Jo's hospital room in the middle of the night, and threatens to kill Austin if she does not receive custody. The judge nullifies the previous custody arrangement, and agrees with Jo's suggestion that the baby be given up for adoption. Amanda is fired after testing positive for illegal drug use. Amanda and Matt discover that Peter prescribed pills for Amanda that contained the active ingredient in marijuana. Although Amanda has no proof, Peter believes her bluff. He knocks her out and plans to kill her on the operating table. Michael pulls the scalpel away and breaks Peter's nose. Michael and Amanda interrupt a D&D meeting where Caitlin is to be appointed president, and discredit her. Alison stops Terry from drinking after he loses a playoff game. He expresses his gratitude

Rikki commits acts of vandalism against Jo, Jane and Jake, who believe that Syd is responsible for the crimes. The isolated Sydney is forced to turn to Martin's cult for comfort. The visiting Meredith admits that she has never slept with a man because of the trauma of the childhood abuse. She tries to seduce Billy. The new chief-of-staff institutes mandatory psychological testing for the staff. Kimberly's test proves that she is extremely disturbed and highly dangerous. She has some men on the street assault test coordinator Matt, then changes her results while he is out of commission. John Rawlings, the police detective investigating the case, befriends Matt. Billy is concerned by Amanda's deteriorating health, and asks Michael to check her out. Amanda is horrified when tests reveal that she has Hodgkin's Disease.