A sailboat owned by Capeside High's pompous Principal Dave Peskin, with "Class of 2001" written on the sail, and with his pet dog aboard, is found in the school swimming pool as part of a major school prank. As a result, Mitch Leery and Principal Peskin are after the guys who did it in which Dawson, Pacey, Jack and Drue are main suspects. Since, the dog that was on the boat instantly recognized Jack, Pacey had access to the yacht club and Dawson had access to the school keys. Each one has alibis for that day; Jack was at the soccer field with Jen to help plan a game. Dawson was cleaning Mr. Brooks parlor where he discovers that the that the old man was a former filmmaker from the 1950's. Pacey was with Doug on a routine police patrol where they squabbled about Doug's well being. Drue, despite his denials, is revealed as the culprit. But at the end, Joey finds out that Dawson, Pacey and Jack all teamed up to pull it off and to get Drue into trouble.

As graduation day approaches, Joey has a tough time preparing her commencement speech, and Dawson helps her find some bittersweet inspiration. Pacey wonders if he's going to graduate at all and worries that his last final will be the toughest one. He walks out of it after his teacher makes a rude comment on him, costing him his diploma. Meanwhile, Andie McPhee returns to Capeside for the cap and gown ceremony, and is surprised to meet Jack's new boyfriend, Tobey. Pacey spends some quality time with Andie and decides he must get out of town to search for his feelings. After a friendly talk with Doug about his future, Pacey privately says his goodbyes to Doug, and then leaves town, vowing never to return. Also, Drue temporarily moves into Jen's house after being kicked out of his home by his mother after an argument. Drue then tells Jen that before they both graduate and go their separate ways to college, he convinces her to help him pull a hilarious senior prank for old times sake by setting off the school sprinkler system during the ceremony. But they get caught by Principal Peskin whom forces them to listen to his awful violin playing skills for three hours as their final detention of punishment.