As Christmas draws near, the zone commander, Haverill, starts to come down on Lt. Fancy about his work skills and Sipowicz later intervenes and threatens Haverill to lay off Fancy or he will reveal some incriminating evidence about him being a racist. Meanwhile, Kelly and Sipowicz investigate the kidnapping of a doctor's daughter. Janice must pass some more information to the mob about the station's moves and wonders how she will get out of this situation. Also, Martinez and Medavoy question a woman and her young son who claim to have been robbed by a man who picked them up while they were hitchhiking in North Carolina. But Martinez later discovers that the woman, Kathy, is not who she claims to be, which leads to a hostage situation, involving Donna, at the station. Sipowicz reluctantly plays Santa as the precinct's annual Christmas party, and Martinez receives his gift from Lt. Fancy when he is promoted to detective, while Medavoy panics when the station's pet cat eats the Christmas rabbit, and Kelly visits his Alzheimers-stricken mother who resides in a nursing home.

Mike Roberts meets with Kelly in search of getting some bodyguard and/or P.I. work for himself after quitting the police force. Meanwhile, Laura feels someone is stalking her and gets Kelly to meet her new boyfriend, Dr. Schrager, who may be the stalker. Elsewhere, Sipowitz and Kelly deal with a woman whose boyfriend was a material witness and is afraid to identify the hit man because he's afraid the hit man's friends will kill her next. None of the detectives are too excited when Haverill sends them down to Times Square for uniform detail at a parade.

Internal Affairs begins to investigate Kelly and Sipowicz's arresting of the officers they caught robbing drug dealer's apartments, then they begin looking into Kelly's handling of the notebook that was part of Medavoy's case. Janice's murder trial continues where she takes the witness stand to give an emotional testimony about her reluctant involvement with the mob and is sent to prison with a two-year sentence. Meanwhile, Kelly and Sipowicz investigate a double murder.

Kelly works with a Chinese detective in the investigation of the murder of an off-duty cop in Chinatown. Lt. Fancy catches Donna and Madavoy in an embrace and warns both of them about relationships in the workplace. The abused woman Sipowicz helped out turns up dead and her husband is a suspect. Meanwhile, a tough new female detective, Adrianne Lesniak, transfers into the squad because of a relationship she had with an officer at her former precinct in the Bronx and begins to work with Sipowicz on his case.

Martinez investigates a baby that was killed in a car from an apparent drive-by shooting. Meanwhile, Lois Snyder contacts Sipowicz for help because a policeman that she was entertaining died in a compromising position and he moves the body to a less conspicuous location. Lesniak's ex-boyfriend, Officer Abruzzo, keeps showing up at the precinct and harassing her, while at the same time, Lesniak locks horns with the officious Vince Gotelli over his working skills and his racy items he keeps. Kelly's future with the department is decided when Internal Affairs comes to the precinct to re-investigate some of his old cases and the result is Haverill transferring Kelly to borough dispatch duty. But Kelly decides to quit the force and after saying goodbye to Sipowitz, he throws in his badge for good.

Lesniak deals with a perpetrator and his "high priced lawyer and shrink" when he repeats the offense. Meanwhile, Detective Solomon uses a fast pull to take a possible serial killer case away from Simone after he brings in a possible suspect. One of Fancy's old contacts, Vinnie Greco, brings in a tip about a couple of guys looking for some heavy arms to do an armored car job and Sipowicz works with him, but Greco is working for someone else against Fancy. Sipowicz invites Andy Jr. over at his place for dinner where his son tells him that he is joining the Air Force. Also, Sipowicz proposes marriage to Sylvia and this time, she accepts.

After discovering a key piece of evidence, Simone gets his chance by Detective Archie Solomon to question the serial killer suspect George Putnam. Meanwhile, Sipowicz, Medavoy and others work on how to stop the armored car robbery and Fancy has a confrontation with Haverill about using his informant, Vinny, as a pawn to try to bring him down and plays a tape for Haverill which he reveals his true attitude which results in his resignation as the zone commander. Also, Martinez and Lesniak arrest an odd extortionist, while romantic feelings for each other begin to appear, and Simone also develops romantic feelings for his writer friend Benita Alden.