The Walshes welcome Valerie Malone, a young and charming family friend from Buffalo, who moves into Brenda's room after she leaves for England. But unknown to everybody, Valerie is secretly revealed to be a manipulative, cynical and callous woman with a taste for drugs and hard liquor. Meanwhile, Donna returns from her summer stay in Texas and claims that she's over with David, who's doing a video for his film class about his travels during the summer. But that evening, Donna has an emotional breakdown when she runs into David at a nightclub. Steve returns from his summer vacation in Hawaii and decides to pursue Kelly, unaware that she's involved with Brandon. Dylan returns from his summer stay in Baja, Mexico and is revealed to have gone back to drinking since learning that Kevin and Suzanne have swindled him and skipped town with all of his money, and Erica. Also, Andrea and Jesse finally take their new baby daughter, Hannah, home.

Donna announces to the gang that she has decided to move to Houston to be a débutante. But Kelly eventually learns that Donna still emotionally fragile since her breakup with David and she's hiding behind her mother just to avoid running into him. Dylan also finds out that his entire bank account is cleaned out by Kevin and Suzanne's scam, but alienated with life and embarrassed and ashamed at himself for what happened, Dylan keeps his financial problem to himself. Meanwhile, Brandon decides to tell Dylan about him and Kelly, but chickens out after seeing him drinking again. Later, at a banquet for Donna's, Dylan crashes the party and creates an ugly scene after being inadvertently tipped off by Nat about Brandon and Kelly. Dylan then goes to a nightclub where Jesse is bar-tending and tries to get a drink, but Jesse turns him away, and Dylan also picks up a prostitute at the bar. When Kelly comes over to Dylan's out to talk to him, she finds him with the scantly clad prostitute. When Donna's mother criticizes her behavior by accepting a dance with D'Shawn, she decides to face up to Felice and stay in Beverly Hills. The university's day-care program leaves Andrea wanting to spend more time with her baby. Also, Brandon is reunited with Josh Richland who offers him a chance to run with him for campus office.

Brandon runs for vice president alongside Josh and does great when he steps in and gives a speech in Josh's place. Their campaign is threatened, however, when Alex Diaz - their opponent's campaign manager - uncovers the unpublished article that Josh wrote about Brandon the previous year, detailing Brandon's tutoring of D'Shawn and alleging that Brandon took tests for D'Shawn. Donna asks Clare (now attending C.U. as a sophomore) to move into the beach apartment in David's place, but Clare brings a bad snoring habit with her. Meanwhile, Valerie secretly decides to pursue Dylan after finding Brenda's mementos of him in the Walsh's garage, and hides her connection to the Walshes from him.

Brandon has trouble coping with Josh's sudden death in a car accident, which is a challenge to his political position when he's forced to fill Josh's shoes. Meanwhile, Donna finds a new man for herself, a KEG member named Griffin Stone, who her mother wants her to date. David meets Clare for the first time, and they, too, become close. Also, Valerie continues pursuing Dylan, who lays out ground rules that their clandestine relationship is based purely on sex, while Valerie continues her "good girl" charade in front of Steve and everyone else.

Kelly's senses alert her to be suspicious of Valerie's true unwholesome colors when she catches her smoking pot and she naturally makes a big fuss about it. But to Kelly's surprise, she cannot get a sympathetic ear. Steve refuses to believe Kelly, thinking that she's just jealous. Even Brandon is skeptic and tells Kelly to give Valerie the benefit of a doubt. However, Donna doesn't seem to care and tells Kelly that what Valerie does in her spare time is none of their business. Later when Kelly sees Valerie at the Peach Pit drinking and flirting with Dylan, she immediately tells Steve. But when then both confront her, Valerie (a true master of manipulation) convinces Steve (but not Kelly) that it was Dylan who made a pass at HER. All in the meantime, Valerie begins to grow suspicions of Dylan's cash-flow state when she discovers him stealing money from the Peach Pit to support himself. Meanwhile, Steve decides to revitalize the Peach Pit by throwing a rave party to boost business. While working on a video project with David and Clare, Donna meets a musician and carpenter named Ray Pruit. Also, Andrea juggles college and child care.

Brandon, now the new student body president of CU, has his first challenge when he is pressed into action by some human-rights activist students who are against the chancellor's friend Quintaro, a visiting Asian dignitary from a fictitious South-East Asian country of Selanesia, who is accused of human-rights violations which puts Brandon at odds with both Clare and Chancellor Arnold. Meanwhile, Valerie helps Steve, Kelly, and fellow KEG members Griffin and Muntz, plan the theft of a rival college's mascot, a huge stuffed bear, during homecoming weekend. Donna skips the caper to spend some time with Ray at his family's pumpkin stand. Also, Andrea is depressed when Jesse is spending more time studying and bar tending than being with her. Andrea then meets a mysterious guy, named Peter, at her local laundromat. Elsewhere, Dylan forces Valerie to keep his financial situation a secret. But when Valerie later walks in on Dylan cheating on her with a local prostitute, she vows revenge.

Kelly's disapproval of her mother's return to modeling increases when she learns that her baby sister Erin is involved. Meanwhile, the Walshes finally learn that Dylan is broke when the proposed Peach Pit expansion leads to an exposure of his finances. Valerie, still smearing with both anger and pity after catching Dylan cheating on her, confirms to them that Dylan is bankrupt. Jim then offers Dylan financial assistance. But the growingly misanthropic Dylan is too far gone to accept any sympathy and rudely blows off Jim. While Donna has trouble balancing the affections of both Griffin and Ray, she sees Griffin's sleazy other side when he whisks her away for an overnight trip to Catalina Island and attempts to seduce her. David's love experiment by handcuffing himself to Clare's bed to win her affections backfires when her father shows up and takes her out to dinner, leaving David alone. The next morning, when Steve and David come over to Dylan's house to talk about the Peach Pit After Dark expansion, they find Valerie in bed with Dylan. Steve, being the person he is, draws the wrong conclusion and responds by punching Dylan in the face.

On Halloween night, Donna becomes scared when her two suitors, Ray and Griffin, finally cross paths during a costume party at the KEG house. After being shunned by the Walshes and the rest of the gang, Valerie considers moving back to Buffalo, but decides to stay after learning that her mother has suffered a nervous breakdown. Steve unfairly blames Dylan for having a tryst with Valerie, and breaks his business agreement with the Peach Pit After Dark. Valerie also fails to bewitch Dylan who's sinking deeper into depravity with hard drugs, while Brandon reacts coldly towards Valerie after finding out that she skipped out on Steve's frat party to be with Dylan after she promised everyone to stay away from him. Meanwhile, Andrea's not pleased to see the cross necklace her baby daughter Hannah receives at a Day of the Dead celebration. Also, Clare talks David into a UFO hunt for the night in the desert near Barstow, CA.

Dylan enters a rehab center after all of his friends conduct an intervention. Valerie and Clare, left out of the intervention, spend the day shopping and bonding with each other. But after one day, Dylan runs away from the clinic with a little of Valerie's help. Dylan then alienates Valerie more with his continuing drug use and attitude in which she walks out on him for good. Kelly gets a modeling offer from Seventeen magazine. Meanwhile, Ray has dinner with Donna's wary parents Felice and John. Also, David and Clare's homemade video of their lovemaking disappears and turns up in the home of Donna's parents.

When Dylan is put in a coma after a car accident while driving under the influence of heroin, bizarre near-death dreams he has mirror his fight for life which involve his drug dealer, his high school principal Mrs. Teasley, Kevin, Suzanne, Erica, Valerie, the Walshes, and his own long-dead father, Jack. Meanwhile, Steve is bothered by the appearance of his annoying and overbearing father, Rush, at a flag-football tournament as part of the KEG sports weekend.

Brandon and Dean Trimble are caught in the middle of a conflict when several Jewish students, including Andrea, protest the scheduled campus appearance of a controversial, anti-Semitist, African-American orator, in which the demonstrations and near-riots disrupt Kelly's photo shoot for the magazine. Meanwhile, Donna plans a party for Ray's 25th birthday. In the hospital, Dylan spends the time talking with his mother Iris, while his drug dealer pays an unexpected visit and threatens him not to tell the police about their business.

Jim gets Brandon tickets to the Rolling Stones' Rose Bowl concert, but a hearing to determine the legality of his presidency is moved to the night of the concert. Jesse argues that Brandon is already the legitimate president, as he has been calling senate meetings to order; the challenge to the presidency is denied. Brandon takes Andrea to the concert. Kelly gets backstage access through the magazine, while braggart Steve has trouble getting in at all after a hippie steals his wallet. Ray and Donna work as vendors and see the show free of charge. David and Clare go to the concert even though they claim to hate the group, but have to turn to a scalper when Mel lets them down. Steve and his father force Dylan out of the Peach Pit After Dark. He agrees to sell his shares when Steve, Nat, and Willie (the cook) visit him in rehab. Dylan and Valerie agree to stop seeing each other, as he doesn't want to involve her in his problems. During group therapy, Dylan has a confrontation with Charley, an older man who likes to bully other patients instead of dealing with his own problems. Charley seeks Dylan's help to finally overcome his addiction.

Emily flies back from Paris to attend a seminar at La Jolla. She asks Brandon to meet her at the airport, claiming to have just a four-hour layover. She actually has a week until the beginning of her seminar, but Brandon breaks her heart by revealing that he is dating Kelly. When he sees her back to her hotel room, they share a passionate kiss. Steve and Griffin organize a holiday rave at an abandoned house. Valerie helps them out in the hopes of getting back in Steve's good graces. David and Clare accidentally post the notice about the event on a computer bulletin board for lesbians, who constitute most of the guests. The house has very poor wiring and continually blows fuses. Griffin uses too much electricity, and the house catches on fire. Ray rescues Steve and Valerie, who were fooling around in one of the bedrooms. Kelly and a girl named Allison are trapped in a downstairs bathroom with no means of escape. The firefighters try to reach them as they are engulfed by flames.

In the aftermath of the house fire, Kelly suffers second and third degree burns on right wrist, ear, and the whole right side of her neck. Allison's injuries are much more severe, but she maintains a positive attitude. Brandon is racked with guilt because of his feelings for Emily. Kelly does not react well when she learns that Emily is still in town. She calls Dylan to discuss her insecurities and Brandon visits him in search of advice. Kelly believes that Brandon is only staying with her out of guilt, but Emily eases her mind when she reveals that he expressed his love for Kelly before the fire. Meanwhile, Steve feels guilty for the house fire and calls upon his father, Rush, to help out. Griffin's father hires an accomplished attorney for Steve and Griffin where Rush advices both to plead guilty to criminal trespassing in order to avoid jail time. Steve and Griffin receive two years of probation and community service... and are forbidden from operating dance clubs or parties for two years. Steve is furious to learn of this provision, especially after he discovers that Griffin in fact stole the keys from his father's real estate office to the house, rather than obtaining permission to use it for the rave. Steve tells his father that he didn't know about what Griffin did, but Rush (being more arrogant and narrow-minded) refuses to believe Steve and tells him not to ever call on him again for help. Afterwards, Steve physically attacks Griffin and orders him to leave the fraternity. Elsewhere, Ray's perpetual bad mood confuses Donna. He explains that his mother always begins drinking around the holidays, as his drunkard father left her on Christmas... after pushing her down the stairs and causing her to have a miscarriage. Andrea and Jesse throw a party for Hannah's first Hanukkah. Jesse obtains work as an attorney for those who cannot afford representation. He is frustrated by the court treatment of a single Mexican immigrant father, whose kids are taken away when a babysitter neglects them. At the end, Dylan comes home from rehab and is greeted by a letter from a stranger who found Erica's bathroom note pleading for his help.

Donna's snobbish mother, Felice, puts Ray's feelings for her daughter to a test by offering him money to stop seeing her, while Ray's alcoholic, chain-smoking, redneck mother, LuAnn, goes Christmas shopping with Donna. Differing family traditions cause tension between the Catholic Jesse and the Jewish Andrea. Clare introduces David to her father during a faculty Christmas party who finds common ground with him over their love of music. Meanwhile, Dylan goes to his old friend, Christine Pettit, from the FBI to help him find his stolen money. Unable to help Dylan, Christine then contacts an alcoholic, former FBI agent-turned-bounty hunter/private investigator, named Jay J. Jones (Jonesy), who contacts Dylan on Christmas Day and offers to track down his money in exchange for getting a full share of it. Brandon is left alone to care for the recovering Kelly when Jim and Cindy leave town to visit Brenda in England and Valerie leaves to visit her mother in Buffalo. Also, Nat hosts a special holiday feed-the-homeless dinner at the Peach Pit.

Steve begins community service at a retirement home and meets Saul Howard, an ex-entertainer with Alzheimer's disease, whom Steve confides in with his problems. Dylan asks Jesse for advice when he is told to appear in court over his car accident. Meanwhile, Valerie returns to Beverly Hills after spending a sunny Christmas vacation in the Caribbean, instead of visiting her mother in Buffalo, which prompts a cold response from Kelly who openly admits to everyone that she despises Valerie and doesn't trust her for a second. Ray declines a request by Donna to perform at the opening of the Peach Pit After Dark nightclub. While working at the hospital as a resident intern, Andrea has a run in with an attractive doctor named Peter Tucker.

On their semester break, Dylan and Brandon take a motorcycle trip through California and they end up being subjected to slave labor by a Native American sheriff for trespassing on a reservation, which helps dissipate the tensions between both of them over Kelly. Meanwhile, Kelly benefits from attending psychology workshop seminars run by a famous, psychology professor named Patrick Finley. Donna tries to help Ray get over his stage fright on the eve of his debut at the grand opening of the Peach Pit After Dark. Steve spends the weekend moping over his father, Rush, taking over the Peach Pit After Dark club from him.

Dylan recruits Valerie to help him and Jonesy pull off a caper in Punta Brava, Mexico to reclaim his lost money after they find Kevin and Suzanne. Jones and Valerie pose as a couple at a resort hotel where they befriend Kevin and Suzanne (aka: Karl and Kitty Cavendish) in order to get to know more about where they keep Dylan's stolen money. But when Dylan wants to rescue his sister Erica, Jones backs out, leaving Dylan to carry on a rash rescue attempt alone. In Beverly Hills, Brandon feels threatened by Kelly's relationship with Professor Finley when Brandon starts dealing with criticism by the dean concerning the professor's tenure and his unorthodox teaching methods. When Brandon meets Professor Finley for the first time to question him about his teaching methods, he sees another side to Finley who lashes out at Brandon which causes a rift between him and Kelly.

Kelly's continued involvement with Professor Finley and his conflict against the college faculty to preserve his tenure frustrates Brandon since he knows about Finley's hostile and paranoid attitude. Meanwhile, Valerie seeks a reward for helping Dylan recover his money and asks both him and Jones to cut her in on a large share. David's old flame Ariel Hunter, now a music company rep, returns and woos Ray to get him to sign a music deal, much to Donna's worry. Also, Andrea flirts with trouble when she starts seeing Peter while Jesse is away on business.

Steve tries to secure the R&B group "Jade" for a Valentines Day telethon at the Peach Pit After Dark. Meanwhile, Brandon coaxes Kelly away from Professor Finley and his work at his newly opened commune, but only for the moment. After moving out of the Walshes and into a hotel suite, using some of Dylan's money, Valerie comes onto Ray who's having problems with Donna and pressures him into an affair. Ray's mother, LuAnn, figures out that Ray cheated on Donna when he doesn't come home after that night, and covers for him when Donna comes calling asking of Ray's whereabouts. Also, Andrea with Jesse meets Peter and his wife, but that doesn't disrupt their feelings for each other.

When a rainstorm hits Beverly Hills for the week, Andrea gets a job at the hospital where Peter works just to be near him. Valerie refuses to accept a "no" from Ray in response to a relationship with him. Meanwhile, Dylan goes undercover as a new Finley follower at the commune to spy on him and Kelly, while Brandon questions Chancellor Arnold and then seeks out a former Finley follower to speak to Kelly about Professor Finley's true racial and unethical ways.

An unseen psycho, who may be the creepy grad student Lenny, creates a crime wave on the CU campus which includes the rape of a coed, worrying everyone. Meanwhile, Ray decides to leave town after Valerie buys the Peach Pit After Dark from Steve's father for her own use. Peter tempts Andrea to stay out late at the hospital with him, so she gives in to his requests to sleep with him. Also, Dylan is tempted by Valerie to fall off the wagon again. Seeking answers to his path in life, Dylan tracks down and finds his rehab friend Charlie Rollins, a motel owner, where Charlie tells him his idea of writing a movie screenplay to make money and asks Dylan for a little help.

Lenny becomes an outcast when he is suspected of the campus rape despite his protest of innocence which prompts him to ask Brandon to help him prove his innocence. At the same time, the real rapist stalks an unsuspecting Donna and violently attacks her in the beach apartment. Meanwhile, Dylan accidentally becomes privy to Andrea's affair with Peter when he sees them together at Charlie's motel. When Andrea decides to leave Jesse to be with Peter, he reveals that he doesn't share the same views as she. Elsewhere, Valerie asks Steve to help secure the rock group "The Flaming Lips" after she cancels Ray's bookings, and Donna wrongly blames David for Ray's departure after Valerie lies to her that David is the one responsible for Ray leaving town.

Brandon, Kelly, Donna and Steve appear in Clare and David's cinema verity project which ends up revealing truths from their pasts to each other. Valerie moves back in with the Walshes after being evicted from her hotel suite. Meanwhile, Dylan helps Charlie work on a movie screenplay and more help comes from Valerie who repeatedly temps Dylan. After visiting a therapist, Andrea considers telling Jesse about her affair. But she is unprepared when Jesse has a confession of his own for her.

Brandon and Clare have the same bad dreams involving "Jeopardy" host Alex Trebek and announcer Johnny Gilbert while competing with each other and Andrea for a spot in the show's college tournament. After learning from Andrea about her affair, Jesse moves in with Dylan and talks about the possibility of divorce while Dylan tries to reason with him to make up with her. Meanwhile, the reconciliation of Mel and Jackie gives David hope of reuniting with Donna whom he still has feelings for.

During spring break, Donna visits Ray now living in Portland, Oregon and David tags along to visit his mother only to learn that she has disappeared. So David, along with Donna and his father, Mel, follow a strange trail of the past to find her, while Ray begins to show increasingly signs of jealousy over Donna helping David find his mother. Back in Beverly Hills, Dylan undergoes hypnosis by a therapist in his research to find ideas for a screenplay for Charlie, while Valerie considers and gets a tattoo for herself.

Sagging attendance at the Peach Pit After Dark draws David back to the stage with a talented new partner named Juwan, a young gang member whose performance is threatened by violence from a disgruntled band. Valerie flies to Reno, Nevada to ask Ray to come back to the After Dark when Donna lobbies for his return. Meanwhile, Brandon becomes a guide to Warren, a young and bright, but immature and spoiled genius coveted by Chancellor Arnold to attend the university. Also, Dylan has a disturbing experience with hypnotic regression.

Kelly finally becomes a cover girl on Seventeen magazine, but hesitates to continue modeling due to her fire burn scars. While coping with her newfound stardom, Kelly learns that she has a new admirer: the horribly scared Alison from the fire that night. Ray returns to Beverly Hills and to a bravo return appearance at the After Dark. But Ray's mother LuAnn, in an intoxicated state, ends up tipping off David and Clare about his unfaithfulness to Donna with Valerie. After David and Clare confront Ray, and then Valerie, they decide not to tell Donna to avoid hurting her feelings. Meanwhile, Andrea thinks about her future after Jesse is offered a law position in Idaho. Also, Dylan continues talking with Charlie about the correct script for themselves.

Hypnotic regression leads Dylan to a past life where he is Billy McCoy, a gun-slinging outlaw in the Wild West, until he meets an upper-class woman (in the form of Kelly) to redeem his outlaw ways. Meanwhile in the real world, while Kelly goes to New York with Steve to meet with modeling agencies, Valerie turns her sights on Brandon who is hoping to be re-elected student body president. But Brandon runs into all kinds of problems when news of college tuition for undergraduates will be increased, he is criticized for not looking after the students best interests. As a result, Brandon's political rival, Alex Diaz, enters the race as a new candidate and wins by a landslide.

Dylan makes summer plans for a trip around the world with Kelly while Brandon counters with a marriage proposal, forcing her to make a decision. Donna tries to cope with Ray's growing hostility as they confront their differences. Meanwhile, Andrea and Jesse go through a tearful going away party at West Beverly high school before leaving town to go to Yale. Also, Jim gets a promotion which means moving to Hong Kong.

The gang goes to Palm Springs for the national KEG/ALPHA fraternity/sorority convention, where Steve tries to find the perfect woman for himself after he rejects the blind date his father sets him up with. But Steve gets more than he bargained for when he meets a shady women named Elle. Kelly spends a day shopping with Alison in which David and Clare misinterpret their relationship as something else. Jim and Cindy put their house up for sale before moving away to Hong Kong. Meanwhile, Donna brings Ray along to make up with him, but later regrets it when he injures her during a fight, while he manages to stay on the good side of her mother. In another part of town, Dylan and Charlie meet with Tom Rose, a mobster-type businessman as a potential backer for their film who agrees to finance their movie, but only if Tom's beautiful, but untalented mistress, gets the lead role.

In Palm Springs, Brandon reacts coldly to Kelly after mistakenly thinking that she and Allison are more than friends; he considers surrendering to Valerie's advances toward him. Things get even worse for Brandon after he's arrested for driving Valerie's car when he's pulled over by a traffic policeman, who finds Valerie's marijuana stash in it. Meanwhile, Steve finally learns Elle's secret of being "more than a woman." Donna decides to give the possessive Ray a second chance, and rudely blows off Valerie, revealing she's figured out that Valerie seduced Ray. Also, Tom Rose and his thugs threaten Dylan with death when they catch him phoning agent Christine Pettit to make a background check of Mr. Rose, for they know something about Dylan's father's murder. This prompts Dylan to terminate his partnership with Charlie and return to Beverly Hills, determined more than ever to find the mobster who ordered his father's killing.