"It girl" Serena van der Woodsen has returned to Manhattan after a mysterious and self-imposed exile to boarding school. Serena's best friend, Blair Waldorf, has conflicted feelings about her friend's return since she has enjoyed being the Queen Bee during Serena's absence and might not be ready to relinquish her new position on the social ladder, not to mention the fact that she has always suspected there may be unspoken feelings between Serena and her longtime boyfriend, Nate.

It's the day right after the Kiss on the Lips party and Serena receives a cold reception from her former best friend Blair. Blair reveals that she knows that Serena and Nate slept together, before Serena mysteriously went to boarding school. Then Serena decides to take Dan to Chuck's fundraiser brunch at The Palace. Meanwhile little Jenny asks Blair for advice, and Blair realizes that she maybe gains something by allowing Jenny into her inner circle.

It's Ivy week for the Upper East Side teens of Constance Billiard and St. Jude's and the visiting representatives' arrival brings more than just college applications. Cut-throat rivalry is at its sharpest this week as the students compete for prestigious positions. Blair discovers a shocking but juicy secret about Serena and plots to drop the bomb at the best possible moment. Dan is sure that landing the coveted usher position with the Dartmouth rep will either make or break his future at the school. Unfortunately, it's Nate who nabs the position, despite total disinterest in the school. Meanwhile, Jenny gets closer to Serena's younger brother Eric and Rufus asks Lily for a favor.

Blair gets excited when her mother, Eleanor, chooses her to be the new face of her clothing line. However, Blair's happiness turns quickly into feelings of betrayal and jealousy when Serena takes her spotlight and Blair finds herself back in Serena's shadow. Meanwhile, Serena and Dan remember once again that they come from two very different worlds. Also, Nate and Chuck do a boys weekend to blow off steam after Ivy Week ends.

It's their first official date and Dan tries to impress Serena with an elaborate plan for the date, but fails to understand that Serena is happier with beer than champagne. That same night Jenny is invited to the infamous Blair Waldorf sleepover and finds herself in a high stakes game of "Truth or Dare". Meanwhile, Lily finds out that Erik is missing from the treatment center, and she finds herself seeking help from her ex-boyfriend, Rufus.

Dan finds himself between two girls when his childhood friend, Vanessa, returns to N.Y. and declares her feelings for him, just as he and Serena are trying to figure out what they mean to each other. At the masked ball, Blair sends Nate on a scavenger hunt, but Nate is distracted by his feelings for Serena. Although Blair said that outsiders were not welcome to the party, a disguised Jenny and Dan sneak into the ball. Finally, Lily asks Rufus to accompany her to an Eleanor Waldorf event only to make Bart Bass jealous.

Serena and Dan finally accept that they are crazy about each other, despite that they come from polar opposite worlds. Chuck thinks of investing in a club trying to make his father Bart Bass proud of him. Nate confronts his father, about the drugs he found in his house but he denies having a problem. Jenny discovers a secret that her parents have been keeping from her. Finally, Blair is devastated by Nate's actions when Jenny reveals that Nate kissed her by accident thinking she was Serena.

Blair is feeling heartbroken and guilty by the current state of her relationship with Nate and her recent indiscretion. But she manages to put on a happy face for her 17th birthday party and attempts to hide her feelings from her friends. Hoping that Serena and Vanessa can bond, Dan takes Vanessa to Blair's birthday party. Jenny brings her mother home as a surprise, but Rufus isn't ready to forgive and forget. Finally, Nate's parents ask him to make a huge sacrifice to save his father's business.

Dan invites Serena and her family to spend the holiday with his family, creating an uncomfortable situation for Rufus and Lily. The children are unaware of their complicated romantic past. Meanwhile, Blair's freaks out when she learns that her father isn't coming home for Thanksgiving. Nate spends the holiday with his family, but their awkward dinner quickly goes from bad to worse.

Serena's grandmother announces that Serena has to go to Debutante Ball. However, Dan is not what CeCe wants as an escort for Serena, and she makes her opinion heard loud and clear, causing a rift between Serena and Dan. Although they are officially broken up, Nate asks Blair to go to the ball with him. A jealous Nate begins to suspect that Blair is seeing someone else. Jenny finds herself having to make the decision of either attending her mother's art opening or following her dreams to the Debutante Ball, even though her parents don't want her to go.

Blair's father, Harold, comes home for the holidays with an unexpected guest. Blair cannot hide her disappointment and makes a plan to get rid of Roman forever. Jenny and Vanessa help Serena get the best Christmas present ever for Dan, who has a surprise of his own for Serena. Rufus refuses to remain the understanding husband any longer after Alison's former lover sends a letter to the house.

Serena, Blair, Nate, Chuck and their class break into the school swimming pool for a night of fun, but when someone nearly dies, the school threatens to expel the person responsible for the break-in. Everyone agrees to not say anything, but this creates major problems between Serena and Dan. Vanessa, while working on a documentary project about private schools, accidentally captures Blair and Chuck discussing their affair. Lily tries to tell Rufus how she really feels about him.