Mr. Morloch has left the school to coach a semi-pro ball team in Buffalo. Holly is leaving to star in a soap opera being shot in Hollywood. Nicole decides to audition for several roles and when she gets a small role in a Broadway play, new principal Mr. Dyrenforth, tells her she has to choose school or the play. An old neighbor tries to use his connection with Leroy to sway his audition.
A series of unlucky events has Mr. Dyrenforth convinced that he is jinxed. When Nicole refuses to have sex with Jesse, the two break-up deciding to date other people for a school dance. Danny and Reggie go to the dance together and find that they share a liking toward each other.
When the school decides to work on a production of "Huck Finn," Bobby expresses uneasiness with the portrayal of his character Jim. Outraged by the content and lack of disapproval from his fellow Black students and faculty members, he leads a protest to have the play banned from the school.
After his niece, Tina, burns down his apartment, Leroy gets Tina to stay with Mrs. Berg while he stays with Miss Grant. Carl, Miss Grant's old boyfriend returns and as they get reacquainted, Tina does all she can to keep them apart in hopes that Leroy and Miss Grant will get married and adopt her.
After a rehearsal for the school's production of "Sherlock Holmes," a pipe in the dressing room bursts. The school is in need of serious renovation only, the school cannot fund the repair work and plans are made to sell the property. Danny and Christopher try to prove that the janitor, Ralph, is accepting bribe money from a contracting firm seeking to use the property to build parking space.
Competition between Danny and Jesse for the lead in "Dr. Jekyll and Mr. Hyde" heats up when it is determined that who ever plays the role has to pass the biology midterm. Jesse is caught with the answers to the test after he passes and gets the lead and Danny is determined to make him suffer. The yearbook money has gone missing.
Lamar, Leroy's brother and Tina's father returns for Tina under the pretense of establishing a life for Tina when he discovers that she has inherited her deceased nanny's $22,000 estate. Leroy is suspicious of his brother's intentions. Dwight is directing a play about the Dewey Decimal System and builds a character around Holly which drives the cast crazy.
When Danny and Chris gain local success with their comedy act, Comedian Sandy Webb, who is running a comedy workshop at the School of the Arts, steals their act and prompts the break up of the pair and Danny's dismissal of comedy. Reggie starts joking around when she realizes that people are taking her portrayal of Lady Macbeth as a joke.
Christopher develops severe stage fright after he makes and early entrance on stage. Jesse attempts the tapping record and Kate asserts that she wants to transfer out of Miss Grant's dance class into Miss Turner's class.
The School of the Arts is plagued by a series of vandalism attacks by two anonymous vandals. Jesse is upset when he discovers that Nicole has a secret admirer who keeps sending her flowers. With the vandalism and unwanted flowers, Nicole seeks solace in Miss Grant's karate class.
As the deejay for W.S.O.A., the school's radio station, Jesse receives calls from Roberta, a suicidal sixteen year-old. After being advised by a psychologist for the school board to continue talking with her, he struggles to keep her alive. Mr. Dyrenforth calls on Dwight to help him enforce a new dress code.
In an effort to establish contacts, Chris gets a job waiting for Laura, an agent, who mistakenly asks him to read for her. Impressed, she sets up an audition for him but with Chris and Laura getting close, Chris' relationship with Kate is put in jeopardy. The dancers from Miss Grant's class are upset with Leroy when he gets them a job with a summer stock company and turns down the offer when the producer revokes their pay.
Leroy severely injures his knee and is forced to go through an operation and rehabilitation. He recovers but when he returns to the school, he fears injuring himself again instead taking his anger out on Henry Lee, a returning applicant. Miss Grant is determined to push Leroy back into dancing before he gives it up forever. Reggie has a crush on Max.
Jesse is hospitalized as he suffers a concussion. He's unconscious and thus unable to testify to what happened. Mr. Dyrenforth, Miss Sherwoord, and Christopher try to get to the bottom of what happened but with conflicting recollections from Mr. Torrence, Nicole, Jesse - through Mrs. Berg who claims she's a medium, and Christopher, they remain unsure about the true events.
As the new school year beings, a few changes have taken place; Christopher has graduated and is moving on to unknown future, Miss Sherwood has finally published her novel and has moved to Maine, and Ian Ware has joined as a freshman but is discouraged when Mr. Shorofsky opts to retire.
Christopher's Cousin is having a wedding with Jesse and Nicole set to dance as a couple. Nicole feels that things have changed and breaks up with Jesse but after getting back together, the two are unsure about where their relationship stands. Danny and Jillian start dating but her over-protective family smothers her.
After being reacquainted with an old actor friend, Paul Seeger, Lydia gets him a job as an acting teacher at the School of the Arts. His toughness isn't received well at first by the kids, but as he opts to leave, they have a change of heart. Danny is asked to give a tour to Hannah Cooper an 11 year-old prodigy who's unwilling to play for anyone.
On the anniversary of Leroy's commencement as a teacher at the School of the Arts, he's faced with accusations that he picked one student over the other for the lead because she was Black. Mr. Shorofsky and Ian butt heads on their tastes in music.
Jesse presents his 30's-styled play to Mr. Dyrenforth who decides to fund the play with hopes of obtaining the prize money of $20,000 from the Kimble foundation. The board decides not to supply the funds but Lou Mackie donates the necessary production money. All is well until Nicole, who plays lead comes down with Laryngitis.
Chris' sister leaves him with her 9-month old son Spike when she has an emergency and Chris is put through the ups and downs of parenting. Mrs. Berg leaves Mr. Dyrenforth to his own devices to attend her brother's anniversary and he learns how valuable she is. Nicole, Dusty, Reggie, and Jillian form a band which creates disagreements between the girls.
Reggie challenges conventionalism in order to help the homeless and ends up in a bit of trouble with Mr. Dyrenforth and the law. Dusty's father, Reverend Tyler, visits his daughter in New York but is determined to take her back to Colorado as he finds the school environment risqué.
Frustrated with not getting work as an actor, Danny goes to the cable access station to get his own show. While in the building, he walks onto the set of "Mr. Whacky's World" and gets a job playing Noodles. With expectations to remain Mr. Whacky's stooge, Danny's left conflicted. Dusty misinterprets Jesse's friendly gestures for a romantic interest.
When Tina comes to visit Leroy, he plans to make her a believer in the Christmas spirit. Between studying and working, he makes little time for Tina which leaves her despondent. Mr. Shorofsky is getting his tonsils removed and two kids sharing his room think he's Santa Claus.
Nicole gets the opportunity of a lifetime when she's invited to sing back-up for her idol Frannie Fortune but Nicole gets a quick lesson in the dog-eat-dog nature of the business. After Mr. Dyrenforth reveals that he's lonely, Danny, Jesse, and Leroy decide to boost his love life by advertising the principal with his plastered pictures all over the city.