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Producer Mary Richards exercises her authority to hire anyone she wants to at WJM-TV, although Lou, along with Ted and Murray, begins to doubt her judgment when she hires a woman sportscaster. Mary feels that Barbara Jean Smathers, an ex-Olympic swimmer, would be the perfect person to add something unique and exciting to the news concept. The staff at WJM-TV admire Barbara as a swimmer, but wonder if she can stay afloat as a sportscaster.

Georgette is forced to cope with the two extremely opposite I.Q.s of the men in her life when the Baxters’ adopted son, David, is failing every subject in school and his concerned parents find out it’s because he has the brain of a genius, quite a contrast to papa Ted. Meanwhile, Mary is trying to solve a problem of her own as she seeks a reason why she gets stuck babysitting for Mr. Grant’s elderly Uncle Morris.

Mary Richards’ plans to spend the holidays with her family are thwarted when she learns she has to work in the television newsroom – alone – on both Christmas Eve and Christmas Day. Determined not to get depressed, Mary puts up a Christmas tree in her apartment and decorates the office with cheery holiday touches, but her heart isn’t in it.

A frightened Mary Richards faces a contempt charge for refusing to reveal a news source, and her lawyer doesn’t make the legal battle any easier as he spends more time researching ways to win her than on the case.

Television news gal Mary Richards receives a notice from the Internal Revenue Service that her last year’s tax return is going to be audited and decides that absolute honesty will be the best policy. When agent Robert Brand appears, Mary tries her best to make him feel comfortable. While not exactly a stick-in-the-mud type, Brand proves to be a meticulous individual dedicated to unearthing the last detail of Mary’s income. She has kept complete records, however, and she produces data to back up her claimed deduction for taking children on a YWCA picnic and buying them ice cream. She even produces the signed ice cream sticks as receipts. Finding himself attracted to Mary, Brand stretches his investigation over a period of several days. Ultimately, he invites her out to dinner – if she will lend him ten dollars.

Phyllis suffers the ultimate indignation when she’s forced to seek a job after Lars suggests she live within a budget and cuts off her credit cards.

Mary Richards arrives in Minneapolis-St. Paul and her long-time friend, Phyllis, finds her an apartment. Although this leads to a conflict with the girl living upstairs, Rhoda Morgenstern, who wanted the apartment herself, the two become friends. Mary starts work at a strange new job – associate producer of a news program for a television station. Her boss is Lou Grant. The following day, Mary’s ex-boyfriend, Bill, shows up from out of town and she invites him to her apartment that night. The evening proves to be a disaster when Lou shows up intoxicated and insists upon using her typewriter to write a letter to his wife. While Lou is typing, Bill shows up, and before long it is apparent the romance between Mary and Bill will never be rekindled.

Lou happily makes the announcement to the news staff that Edie is going to march down the marriage aisle again, but not with him. Hoping to keep Lou as a friend, Edie invites her ex-husband to her wedding – which brings out all the animosity over her remarriage Lou has tried so hard to hide.