Danni McGregor secretly enters the electrifying and dangerous Snowy River cross-country race — an annual race created in honour of her father's famous ride years before. Then, a mysterious American appears, determined not only to win the race at any cost, but also to challenge Matt McGregor himself in the original death-filled ride down the mountainside.

Matt suggests to Jack Kelly that he work for Kathleen in exchange for food and board. Reluctantly, he agrees to do so. Jack and Kathleen argue from the start, but obviously need one another. Oliver Blackwood continues his efforts in trying to undermine Kathleen's hold on her land. Rob and Luke court danger to win Victoria's affections, chasing down a wild stallion. Matt must intervene when Danni is severely punished by the new teacher.

Matt McGregor finds he has a competitor for Kathleen's affections when his mate, Steve Page, arrives at Paterson's Ridge and becomes smitten with the fiery Kathleen. Kathleen's new Braham breaks loose, and she gets caught in the middle of a sudden storm looking for it. When she hasn't arrived back by nightfall, Matt rides off in search of her. Meawnile, Luke starts prospecting for gold on his father's old claim.

Victoria Blackwood and her chaperone return from shopping in Melbourne, but their train journey ends when the tracks are washed away in heavy rain. Rob is sent to collect them and shares a passionate kiss with Victoria. Matt and Kathleen have a disagreement about Sean Carney's education and Emily donates a new organ to Colin's church.

Matt's old flame Anita Hargreaves returns to town after 25 years away just as her father suffers a heart attack. Matt is dumbfounded by her hospitality towards him — and Kathleen's coldness. A bitter Anita forcloses on Matt's loan, only to learn that she had not been jilted by Matt years ago, but tricked by her father. Luke strikes gold.

Danni McGregor and Michael ride into a herd of brumbies. In the confusion Danni is thrown and falls into a disused mine shaft. Michael goes for help, but becomes lost in dense scrub and falls unconcious from cold and shock. Anita sees Matt's obvious affection for Kathleen and realises trying to rekindle their lost love could be useless. News of Luke's gold strike spreads.

Lawlessness abounds as miners stream into Paterson's Ridge. Anita Hargreaves invites Luke to dinner. Colin McGregor proposes to his organist Emily Cornish. Rob and Luke, in defending Victoria Blackwood's honour, get into a punch up with some miners, and Matt finds the courage to ask Kathleen to go with him to the Mountain Ball. Meanwhile, Frank Blackwood plans to poison Kathleen's cattle to force her from her land.

Frank steals a substantial amount of gold from Luke, only to have it taken from him by gentleman bushranger Harry Roebuck. Meanwhile Luke, already mortgaged to the hilt, falls further into Blackwood's debt. Blackwood arrogantly makes Matt an offer for Langara, saying he has plans to marry Anita.

Luke is again pursuing a more than willing Victoria as she helps him search for a new house. Oliver Blackwood inadvertantly nominates a reluctant Matt to run for state parliament forcing him to get Luke to run against him. Danni experiences first love when she falls for an accused cattle rustler. Colin and Emily marry but Matt seems to have eyes only for Kathleen.

Oliver Blackwood becomes part owner of the bank and is delighted to learn that Langara's deeds are security against Matt's loan. Luke proposes to Victoria Blackwood to the dismay of her father who refuses to support the union. When Luke and Victoria persist, Oliver tells his daughter she will be completely disinherited if she marries a McGregor. Matt wins the election.

Everyone is excited that the railway is coming to Paterson's Ridge, except Kathleen, because it will run straight through the middle of her property. She decides to go to Melbourne to argue her case. Matt is also going to the city to be sworn in as a new Member of Parliament. They travel together and Matt takes Kathleen to the ceremony where she pleads her case to the governor and then to a ball. They dance together and, filled with emotion, he tells her he loves her. Meanwhile, Oliver hires a mining engineer to conduct an assay of Luke's mine and Vernoica is sent to England.

Oliver Blackwood learns Luke's mine is worthless and tricks Luke into buying him out. Luke discovers the truth but it is too late and he is forced to abandon the mine and lose his mansion. The bank threatens to foreclose on Matt forcing him to muster his cattle through Blackwood's property to get to the cattle sales, but Blackwood is determined to stop him. Luke is knocked unconscious after an explosion in his gold mine.