Sakura’s class receives a new transfer student, Eriol Hiiragizawa, a boy from England, and he starts charming Sakura, making Syaoran jealous. Later on, Sakura receives a vision from Clow Reed that he may bring trouble to her, and that night an unnatural storm hits town. Sakura decides to investigate, and discovers that the storm was created by magic. Sakura tries to end the storm, however trouble arises when Sakura attempts to use her Clow Cards.

Exhausted from the events of the other night, Sakura remains in bed and sleeps into the afternoon before being visited by Syaoran and Tomoyo. Kero explains that Sakura used a great deal of power to transform the Clow Card, explaining her sudden tiredness. Since the Fiery Card was transformed to be under jurisdiction of Sakura's power, Sakura's friends henceforth transform the cards into "Sakura Cards". Later at school, Sakura overhears Eriol playing the piano and has Tomoyo sing to his music; unbeknownst to them, however, Eriol enchants the piano while he plays.

Sakura begins to wonder if the bizarre goings on are connected to Clow Reed's presence, though she is aware that Clow is long deceased. At recess, Rika shows everyone a teddy bear she made. Sakura decides to get her own teddy-bear-making kit at the craft store where she sees Eriol buying several spools of string. That night, Sakura and Kero once again sense Clow Reed's presence and meet up with Syaoran and Tomoyo.

Several people at school have started making their own teddy bears to give to their loved ones, while Eriol helps Sakura make her bear for Yukito, secretly enchanting one of its ears. Syaoran, who also has feelings for Yukito and has made his own bear, begins falling in love with Sakura as well. Yue approaches the confused Syaoran and tells him that the reason he seems to be in love with Yukito is that he, having descended from Clow Reed, feels an attraction to the moon powers Yue emits as a creation of Clow. That night, Sakura gives Yukito the bear, only to see it grow in size in response to Eriol's magic.

Yue secretly confides with Kerberos that he has recently been losing his energy, and that Sakura's powers alone aren't enough to help him maintain himself; he adds that if his power disappears, both he and his alter ego Yukito, who is oblivious to this incident but growing increasingly aware of it, will fade from existence. Toya, who is aware of Yukito's predicament, attempts to tell him the truth, but is once again interrupted by Nakuru, making it clear she is doing so on purpose. Meanwhile, Sakura's attention is drawn to a large, deep hole in the middle of the playground. She is able to enter the hole, though her friends are not since it is sealed by Clow Reed's magic.

Sakura learns that the Clow Cards she is unable to use are beginning to lose their power, and will become ordinary cards if they aren't converted into Sakura Cards. Unwilling to let this happen, Sakura brings her Star Wand and despite Kero's misgivings, recklessly converts several cards at once although she's left weakened. However, she loses control of one of the cards, the Dash, which panics and flees, possessing Toya's bike which Eriol had enchanted earlier while helping Sakura clean her yard.

Fujitaka gives Sakura her mother's old calendar, and learns about her great-grandfather (the two had previously met, though Sakura remains unaware of his identity) and how he disapproved of his granddaughter's marriage to Fujitaka. Hoping to set things right, Sakura hand-makes a gift and uses the Flower card to decorate it, along with a letter about how happy her mother was.

While reading Alice in Wonderland, Sakura is sucked into the book's fantasy due to another of Eriol's enchantments, this time on a leaf he gave Sakura to use as a bookmark. There she meets the story's characters who have taken on the forms of her friends and family: Eriol is the Cheshire Cat, Yukito is the White Rabbit, Toya is the Mad Hatter, Syaoran is Tweedle-Dum and Tweedle-Dee, Tomoyo is Humpty Dumpty, and Kero is the Red Queen.

Sakura's school is hosting a bazaar, and Kero attends to eat sweets, hiding in the woods. Nakuru, meanwhile, brings Spinel Sun along and hides him in the same forest while she attends the bazaar. Kero meets Suppie (the pet name Nakuru gave him) but is completely oblivious to his true nature and befriends him, forcing him to eat some of the sweets. As a result, Suppie becomes intoxicated by the sugar and goes on an eating binge throughout the school. Kero, who is unable to explain the predicament to Sakura, asks her to use the Sleep card on all the customers, allowing him to get rid of Suppie.

Syaoran's feelings for Sakura have been steadily increasing, though he still doesn't understand why, and Sakura remains blissfully unaware of it. Soon Sakura invites him to go to a teddy bear festival with her, Tomoyo, and Eriol. However, Eriol secretly traps Sakura and Syaoran on an elevator, where the two grow closer. Eriol then creates a large hole in the wall of the elevator, causing Sakura to fall through. Distraught, Syaoran calls out to Sakura by her first name for the first time.

Eriol casts a spell on Kerberos and Yue so that they are unable to revert to their guise forms, much to Sakura's dismay, since it is understandably difficult to hide their true forms for long. Fortunately, Toya and Fujitaka are out for the day, and Sakura has them help around the house while reminiscing about their time with Clow Reed.

Sakura grows in magical strength and power for every Clow Card she transforms into a Sakura Card, while Yue's energy begins to falter. Yue also comes to the realization that Eriol is in fact Clow Reed and transforms in front of him. However, Eriol makes Yukito faint and erases his memory of him ever realizing who Eriol truly is; Clow Reed, since he is not yet ready to reveal himself and also reverses Yue's transformation back into Yukito. Syaoran, in the meantime, has fully realized his strong romantic feelings for Sakura and consults with Tomoyo, who helps him deal with his jealousy towards Eriol and gives him the confidence (just barely, though) to speak his mind to the oblivious Sakura. Before he can do so, however, both he and Sakura sense Clow Reed's presence once again, this time in the form of a basketball that leads them through the school at night.

Remembering his promise to Meiling that he would be her "fiancé" until he found someone he loved more, Syaoran calls her to tell her that he is in love with Sakura, though he is taken by surprise when Meiling arrives in Tomoeda for the day. While Meiling spends the day with her old friends, the group is attacked by a set of enchanted penguin statues at the playground.

Kero is almost positive that Toya knows everything about Sakura's secret, though Sakura dismisses his claims, saying Toya would make fun of her if he did. Toya, meanwhile, is certain that Nakuru is deliberately interrupting him while he tries to tell Yukito the truth about why he is always feeling fatigued. The two make plans to buy a Christmas present for their father, though Sakura senses Clow Reed's presence again.

Sakura goes to a New Year's festival and notices that Yukito isn't around. Toya goes to check on him, discovering that he has not only collapsed from fatigue, but he's also beginning to fade from existence since Sakura's power, despite how strong it has become, is not enough to sustain Yue. Later at the festival, she receives a fortune from Eriol which he secretly made and enchanted, saying that she will begin to learn the "truth" in her "first dream of the year." That night, Sakura transforms the Dream card in her sleep and has a dream of the sky being blanketed by darkness emanating over Tsukimine Shrine, where she sees the silhouettes of Eriol, Spinel Sun, and Ruby Moon. When Sakura awakens to realize what she's done, she and Kero begin to suspect that they will meet the three silhouetted figures very soon.

Sakura and her friends go spend the day at a new indoor water park, where Eriol causes the water to rise to dangerous levels. When Rika, who has trouble swimming, nearly drowns, Sakura uses the transformed Watery card to save her, risking being seen using her magic by everyone. However, it appears Eriol would have returned things to normal if Sakura was too late, making his motives unclear.

There is an avalanche that Sakura must stop. She transforms & uses The Time(Which we all know uses alot of magic), The Fly to get to the spot of the avalanche, and attempts to use The Firey(One of the four element cards, also requires ALOT of magic) and faints. The Time's magic then ends and the avalanche almost falls on Sakura, but Eriol stops it. This marks the one and only time Eriol has to assist Sakura with a problem bestowed upon her by himself. Eriol also mentions how the one thing he does not want to do is cause Sakura pain, but it seems as if he can't not cause her pain.

Toya and Yukito are starring in an independent film directed by Nakuru for their school fair, and Nakuru gives Sakura a role. Sakura later begins to notice that Yukito is losing his power and is starting to fade away. Things come to a head when Yukito passes out and falls of a veranda while shooting the film, though he is saved by Toya and, secretly, Sakura. Toya finally manages to tell Yukito the truth about his power, telling off Nakuru when she attempts to interfere. In order to maintain Yue's power and existence, thus allowing Yukito to survive, Toya sacrifices his powers to save him, though losing the ability to sense when Sakura is in danger. As such, Toya has Yue promise to protect Sakura, as well as himself. Having overheard, Sakura realizes that Toya had indeed known about her secret all along. She confronts Kero about why he didn't tell her about Yue/Yukito; Kero explains that he did so to prevent her from blaming herself, since her power alone wasn’t enough to sustain him, and thus act irrationally because of it. Not wanting Yukito to disappear again, Sakura resolves to confess her true feelings to him.

After viewing Nakuru's film, Sakura tours the high school fair with her friends, while Toya comforts Yukito when he appears troubled by the fact that he is not human. Alone with Yukito in one of the attractions, Sakura tells Yukito how much she likes him. However, Yukito gently rebuffs her, saying that her love for him is merely platonic, and that he already has someone he loves; Sakura, in a rare moment of insight, realizes that person to be her brother, Toya. Yukito tells Sakura that the person she loves most is still out there when Sakura senses Clow Reed's presence once more. Using the Maze and Illusion cards, Sakura manages to trap the presence and discovers it to be coming from Eriol, though she loses consciousness. Eriol jumbles her memory of the discovery, acknowledging that she has indeed grown powerful to find him. Sakura tells Syaoran of her experience with Yukito and, despite her understanding and acceptance of the matter, begins to cry. Knowing that now is not the time to tell her that he loves her, Syaoran comforts her and assures her that she will find the person who she loves the most.

Sakura heads to school in the morning, but does not see Yukito. She notices that there is a festival and asks Syaoran whether he wants to go to the festival at Tsukimine Shrine. He agrees, much to Sakura's delight. As the lessons continue, Sakura feels sleepy again. Syaoran notices this and is worried. As Tomoyo and Sakura walk home, Sakura admits that she feels much better now and thanks Syaoran and Tomoyo for their help. As Syaoran and Sakura walks to the shrine, Sakura gives Syaoran her handmade scarf, which Syaoran shyly accepts. Toya, Yukito (and Eriol) turn up and the shrine (Sakura invited them);Sakura happily goes with Yukito. Sakura and the rest waits near the lake while Yukito and Toya went to get drinks. As Sakura walks near the lake, she felt Clow's presence and Eriol summons a strange-looking horse. Sakura transforms the Wood card in an attempt to immobilize the horse but fails. The horse cuts the power lines and Syaoran sends a blast of lightning but the damage was not enough. Syaoran then sends a blast of wind to push the horse into the water. Sakura transforms the Thunder card to electrocute the horse and succeeds. As the power lines are cut, there are no lights. Sakura then transforms the Glow card to illuminate the shrine, while Syaoran wonders whether he should confess his love to Sakura.

Sakura uses the Return card with the help of the cherry blossom tree at the temple. In the past she first sees Keroberos and Yue talking. Kerobers says hes concerned about the cherry blossom tree because its already spring and it hasn't blossomed. Clow Reed sees Sakura then walks over to the 2. He uses the flower card to help the tree. The images fade and Sakura passes out. (Return is a time card and requires alot of energy to use. Sakura wakes up and finds herself leaning against a sleeping Keroberos. Clow Reed said he let her rest so her energy could return. He says he knows she's from the future. She tells him that strange things are happening in the future and they sences his magic. The scene changes and Sakura is runnig down a hall in Clow's house. She runs past a room but doubles back to see. This time she can only watch, for the Return cards power is running out. Yue and Keroberos seem upset. Clow Reed has told them that he is going to die. Both guardians are upset at this.

Eroile stands above Sakura, Synoran, Kero and Tomoyo, and reveals the truth at last: He is the reincarnation of Clow Reed himself!

He then casts a spell that eclipses both the sun and the moon. This puts those not entuned with magical power to sleep.

As Yue and Toya race to the shrine, Toya collapses, with no power to call his own any more, the spell is able to affect him also.

Eroile then challenges Sakura to use her abilities to break his spell of Darkness or everyone will sleep forever!

With Kero and Yue being kept busy by Spinal Sun and Ruby Moon, Sakura knows she is vulnerable, so she strikes quickly. She uses the shield card to protect Synoran and Tomoyo and uses the jump card to get closer to Elrole, but the sorcerer summons a fire spell to drive her back, Skaura falls backwards, Synoran uses wind magic to catch her, but in doing so, drains himself of all his remaining strength.

After further battle, and more card changing, Sakura realises that only the power of light can shatte

The challenge is over at last.

All the cards have been captured, all have been turned.

The tests are over, or are they?

There may be just one remaining, one that may have to be resolved with the heart.

Life has been difficult for Sakura and Li since the day Synoran confessed to sakura that he was in love with her, Li finds it difficult to approach Sakura, whilst Sakura herself is torn, not knowing if she feels the same way for Synoran.

The two barly exchange words when they return to school, where they are told by Tereda-Sensi that Eroil is transferring back to England.

Sakura, Li, Tomoyo [Armed with her camera as always] and Kero head for Eroil mansion, seeking answers, they are startled when the mansion's front door opens by itself, as do all the other doors from within the building.

When the final door opens, the four are shocked to discover that Eroile is holding a party for them!