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Mary Richards’ boss, Lou Grant, gets in trouble with the new station manager when the news show ratings drop. Mary attempts to organize a strike when the station manager tries to get the newsroom staff to evaluate Grant’s work. The strike flops, but Mary is elected to see the owner of the station, an eccentric millionaire and former cowboy actor. The owner storms into the newsroom and unexpectedly hires Lou to be news manager of one of his other stations. When it is pointed out that he already has a man there, the eccentric rehires Lou to his old job. The new station manager gets his just medicine when he gets fired because he cancelled the owner’s favorite children’s cartoon show.

Gordy Howard, former weatherman for WJM-TV, returns to Minneapolis for a visit after signing a contract to host a morning network show in New York. Thrilled over his success, the news staff can barely await his arrival, especially Ted, who plans to con Gordy into letting him co-host the network show.

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.