Felicity continues to mourn a year after she learns that Gus' ship was lost at sea. While attending a town meeting, she is maneuvered into excepting a position on a committee to assess the old Lloyd mansion. Upon examining the house, the committee discovers four orphans living there. Stuart McRae, a new banker, supports Felicity's idea that the house should be converted into a fondling home. The project, along with Stuart's affections, promises to help Felicity get over her loss of Gus.

The Dominion Day picnic finds Felix in jeopardy of losing Izzy's friendship and Jasper trying to tell Olivia he has been offered a teaching position in England. The boys in town are all making eyes at Hannah Hubble while the girls look on with growing irritaion.

Davy sees a 'mermaid' in a traveling show and is smitten. He has his head full of dreams and fantasies. Rachel is improving since her stroke and is learning to enjoy the ""little things"" in life. The traveling show tries to swindle the town out of it's share of profits; but Davy discovers what is going on and puts a stop to it.

Izzy is at loose ends. Felix has betrayed her, and her father is involved with his new bride. After writing to her mother's sister, Izzy is surprised when her aunt arrives in Avonlea. The woman dazzles Izzy with tales of her glamourous life, and Izzy decides to return to Boston with her Aunt Lillian. Lillian is exposed as a woman in financial ruin, and Felix makes a heartfelt plea to Izzy to stay in Avonlea with him. As home and love are strong ties, Izzy decides to stay in Avonlea.

Janet King's sister, Abigail, and Great Aunt Eliza return to Avonlea, turning Janet's world upside down. Janet hints to Abigail, that there may be a wedding in the spring and shows her a dress pattern she wants to make. After several remarks Abigail made to Cecily are told to Alec, he thinks Janet is pining for the engagement ring he was never able to afford. Alec is determined to get Janet a ring and takes her wedding band to ""size"" the new ring; Janet thinks she lost her band and tries to get a replacement

Just as Simon Tremayne receives an offer to buy out the White Sands hotel by a buyer who wants to modernize it, Hetty learns that the school is to be closed down and its students sent to school in Carmody. Her devastation is tempered by her blossoming romance with Simon; she soon accepts his proposal of marriage. However, pressure on both of them to fight off the idea of losing their respective jobs (Hetty calls for a comparative test between the students of Avonlea Public School and those of the Carmody School) makes them realize that, though they may love each other, they are too career-oriented to be married to one another.

When a famous song writing team come to the White Sands hotel; Hetty wants no part of them until she learns that they are ""intimates of the King o England"". They are to be the stars of her musical at the hotel. When Felix tries to interest them in Uncle Jaspers ""recording device"" they are more impressed with Alec's singing than they are the electronics. Alec has a chance to go to sing on Broadway or remain in Avlonlea.

Two orphaned brothers arrive at the Avonlea Foundling Home and bring trouble and strife with them. They are looking for their big brother,Jim, who arrived in Canada before they did. They steal money from Hetty, cause mischief in town and make trouble for Davy. Davy ""borrows"" money from Hetty and takes the boys on a train ride to Halifax to find their brother. Hetty takes Davy to task for his actions; but he has learned a valuable lesson. and we see that Davy is finally growing up.

Great Aunt Eliza is about to turn 90 years old and Janet and Abigail plan a party to celebrate. Cousin Winifred, arrives and stirs up old sorrows for Eliza. They once both loved the same young man. Winifred finally reveals to Eliza the true state of the young man's heart. Eliza and Winifred make their peace with each other.

A mysterious telephone call to the King Farm leads Felicity King, mere days before her wedding to Stuart McCrae, and Hetty King in search of Gus Pike, who had been reported drowned at sea. After a long trip to South Carolina and running into several dead end leads, Felicity and Hetty find Gus had survived the ship wreck...however, Gus has lost his sight in the accident! Now it is up to Felicity and Hetty to convince Gus to return home to Avonlea...and Felicity has some hard choices herself to make. Will she honour her engagement to Stuart, a kind and gentle man, whom she does not love...or will she return to the arms of the boy, now man, that has always held her heart, Gus Pike?

Jasper returns from England to find that Olivia has taken in Lottie, a young woman recently fired from the Carmody cannery, and her baby. Meanwhile, Eulalie Bugle and Archie Gillis are campaigning for Avonlea to amalgamate with Carmody, a situation that Alec, Bert Potts, and Stuart fight vigorously with a counter-campaign. An emotional address by Jasper seals a victory for the anti-amalgamation activists, but their luck soon changes when the Dale Cannery is struck by lightning and burns to the ground. Faced with no job, Lottie leaves her baby with the Dales and disappears.

Gus' return to Avonlea stuns the King Family and forces Felicity to make a decision between her childhood sweetheart, Gus and the kindly banker, Stuart. In the meantime, Jasper and Olivia have decided to leave Avonlea, after the disastrous Dale Cannery fire and Hetty is furious. Felix makes a decision that stuns his family, especially his mother Janet, and a certain familiar character makes her prodigal return to Avonlea for Felicity's wedding day.