After spending the summer with his mother in Philadelphia, Dawson returns to Capeside and meets a beautiful, outgoing, young woman, named Eve, on the bus from Philadelphia. Eve soon brings trouble to Dawson's ho-hum life when he accidentally wrecks his father's boat during an outing with her and tries to come up with $3,000 to repair it before Mitch finds out. So, Eve helps out by throwing a rave party at the Leery house with strippers from the club she works at. Meanwhile, Joey, who has frozen Dawson out all summer for forcing her to rat out her father, realizes that she still has feelings for him again when they meet during the first day back at Capeside High as juniors. While working at the Capeside Marina, Joey deals with the come-ons from her sexist boss Rob Logan. Jen gets more than she bargained for when she tries out for Capeside High's cheer leading squad and faces off in a war-of-wits against the mean-spirited head cheerleader, and acquires her position. Also, Mitch gets a new job as Capeside High's varsity football coach, and a new charismatic, but very stern, principal, named Howard Green, arrives to administrate the school.

Dawson is recruited by Mitch and Principal Green to produce a film for the football pep rally, while the mysterious Eve continues to temp Dawson. Meanwhile, Pacey enlists Joey's help for help in bringing Andie back to Capeside. But Pacey's and Andie's long-awaited reunion doesn't go exactly as Pacey intended when a guilt-ridden Andie tells him about a fling she had of her own and as a result, Pacey breaks up with her. Also, Jack is asked to join the football team, the Capeside Minutemen, and then comes to an unexpected understanding with his father who has returned to Capeside after moving his struggling business to live near Jack and Andie. Also, head cheerleader Jen has a meeting of minds with the new Capeside quarterback; the rookie freshman Henry Parker.

Dawson is stunned when Eve presents him with stolen copies of the school's PSAT's and everyone is tempted to cheat, including Joey whose scholarship to Harvard is dependent on her SAT scores. But when the test goes missing, Dawson wonders who stole it and accusations run high, especially with Pacey. Meanwhile, Jack feels that the whole football team is verbally and physically beating down on him because he is gay, while Henry Parker asks Jack for advice on talking to Jen. Also, Rob Logan continues to make Joey's life difficult at work after she turns down an offer to go on a date with him.

Mitch and Dawson are at odds with each other again when Dawson moves forward with a news piece for his mother's Philadelphia station using Mitch's star player, Jack, as his subject matter, even though Mitch is vehemently opposed to it. Meanwhile, Joey and Pacey find themselves in cahoots when they must pay the price for ditching school for the day so Pacey can work on a 'dream boat' he plans to sail around the world in, while Andie panics and jumps to conclusions when Principal Green wants to meet with her after school after mistakenly thinking that he knows about her cheating on the PSAT's. Also, Jen goes to great lengths to remove herself as head cheerleader due to the stress of being in that position, but is shocked at the end results which involve the painfully shy Henry Parker.

Dawson recruits Joey, Pacey and Jen to be his guerrilla crew on a documentary for history class about Witch Island, a local spot shrouded in mystery for its reputation for being haunted by witches. During their work, they are haunted by tall tales of witches and love lost that has Dawson and Joey questioning their failed romance and Jen and Pacey on considering a new kind of friendship. Back at school, Andie takes her new job on Capeside's disciplinary committee a little too seriously when she tries taking back the halls of the outgoing students.

Dawson experiences an identity crisis when Nikki, who happens to be Principal Green's daughter, arrives in Capeside and gives Dawson advice on his future as an aspiring young director like her. Joey experiences her own crisis when Dawson won't open up to her about the pain of his parents divorce. Meanwhile, during a weekend outdoor folk concert, Jack's first efforts to hit on another guy are rebuffed when the man, Ethan, only wants to be friends. Elsewhere in the camp, Jen realizes that she may have passed up the chance at something special with Henry. Also, Pacey and Andie uncomfortably find themselves sharing the same after school activity of planning a school play of 'Barefoot in the Park,' with Pacey in the lead role, and Andie as the assistant director.

Joey is chosen to be part of a group of students to paint a school mural, but when hers is defaced before the unveiling, Dawson offers words of encouragement while Pacey takes action and risks suspension when he goes in search of the culprit whom he suspects to be Matt. When Andie's PSAT scores rank among the best in the country, she feels tremendously guilt-ridden and gambles with everything she has worked for by telling Principal Green about the previously stolen PSAT test. Also, Pacey moves in with his brother, Doug, when their divorced sister and her kids move back into the Witter house and take over Pacey's room.

Joey relies on the support of Pacey and A.J. to rally the students in a major school protest against the school superintendent, Dr. Fielding, after he forces Principal Green to resign for expelling Matt Caulfield who destroyed Joey's mural after the guy's wealthy and powerful parents threaten the school board with a lawsuit. Meanwhile, Dawson and Gail both go back to their respective places in back and in front of the camera to produce a piece about the ongoing school protest which ruffles more than a few feathers of the school board hierarchy as well as Gail's old rival; a reporter named Sherry Eisle who "stole" Gail's old job back in Philadelphia and is now covering the story in her own self-serving and bias way.