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.

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.

Oliver Blackwood schemes to take over Matt's land. Frank Blackwood is jealous of his father's business dealings with Luke. Herbert arrives home with some local dignitaries to find Anita and Luke in a passionate embrace. The next day their liaison is all over town, and Anita arrives at the Mountain Ball on Luke's arm. Oliver Blackwood asks Anita to share his life at Balmoral, but before she can answer, a shot rings out and he falls to the floor.

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.

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.