As the new term starts Gareth, following a nervous breakdown, comes back as caretaker, Luke Martin leaves for a pop music career, which proves to be disastrously short-lived, and Gunn is teaching geography, which he can hardly pronounce. Sarah is organizing a careers day but since Keith stood her up by mistake by going to the wrong restaurant for their date she relegates him to a small part in a humiliating role play. However he gets back into her good books by comforting her after her guest speaker, Fenella Forbes, a children's author with whom she went to college, ...
Gunn's ineptitude as a geography teacher gets him replaced by blind but hip Dr Dalton, Meanwhile Keith gets Sarah a birthday present, a huge photograph of Blackpool tower which believed was of the Eiffel tower. Keith and Gunn visit Sarah to help her hang the picture - which they do eventually - but stay around to witness Sarah's date with Dr Dalton, who somewhat disgraces himself and consequently resigns from the school.
Gunn is approached by old flame Trish, mother of pupil Ryan, who reminds him of a one night stand they had thirteen years ago. As a result Gunn wrongly believes that he is Ryan's father and, although the boy is useless at everything, praises him to the skies. After he has confided in Sarah the whole school knows his 'secret' so he goes public on the parents' evening. Trish has to disabuse him and bring him down to Earth with a bump.
The staff are caught unawares by a visit from three school inspectors, led by the formidable Ms. Steele. Ms. Baron, ingesting drugs confiscated from a pupil, is especially caught unawares, with the drugs somehow ending up in Ms. Steele's handbag. Keith's dressing as a hydrogen atom, Sarah's lame attempt at playing Le Bingo and Luke's desire to replace Bach with Kasabian do not impress and the school faces closure - until the contents of Ms. Steele's handbag are revealed and used against her.
Sarah welcomes disabled Dean, a boy who was removed from his last school for bullying, only to discover that he was the actual bully. A presentation is held to mark Mr Hubble's forty year service to the school, after which Keith discovers he has died and leads several unsuccessful attempts to hide the body. At the funeral Sarah exposes Dean's bullying and gets thrown out when he plays the victim. With Mr Hubble gone Keith is now the head of chemistry but Baron tells him that, due to financial cuts, she is scrapping department heads.
Whilst sleeping in Sarah's classroom because he is homeless Gareth accidentally sets fire to it and it is gutted, forcing her to share Keith's classroom, which does not go well. Gunn is prevailed upon to accommodate Gareth and is horrified when his mother falls for their lodger, with whom she has regular sex, and wants her son to move out. As a result a newly-confident Gareth returns to school as a teacher whilst Sarah and Keith make up and go for a drive together.