New KACL station manager Kate Costas (Mercedes Ruehl) has a reputation for being a fearsome perfectionist, and inspiring fear in her subordinates. Frasier refuses her demands to sensationalize his show (such as themed shows and giving priority to "juicier calls"). So he is moved to the graveyard shift as a result, spoiling his sleep patterns and making Roz bitterly resentful.

Niles and Frasier are in the office of couples therapist Dr. Schachter (Milo O'Shea). Flashbacks show Frasier receiving a call on his show about a recurring dream, which he does not have time to investigate fully, while Niles is having problems with a tenant in his office, a practitioner of scream therapy. When Frasier revealed his discontent with radio psychiatry, and his wish to return to private practice, Niles proposed that the solution to his difficult psychiatrist co-tenant is to replace him with Frasier. The prospect of working together and consulting each other excited the two brothers initially, but they soon fall out.

Frasier's Aunt Louise, who was not popular in the family for her tendency to criticize everyone, has died. Frasier has been left in charge of organizing her memorial and delivering a eulogy, and Niles is responsible for disposing of her ashes. Neither appreciates their task. Meanwhile, Daphne reveals that Martin has a collection of songs in a shoebox which he wrote years ago for Frank Sinatra, always dreaming that one day he may open a concert with them. The problem is that only the words are written down; the tunes are all in his head. Niles and Frasier are keen to help out.

Bulldog (Dan Butler) targets a series of pranks at Frasier (which culminates in Frasier singing "Three Little Maids" from The Mikado in a falsetto voice live on air). Frasier decides to retaliate by hiding a lizard in Bulldog’s raffle box, only to watch in horror as Kate becomes his unintended victim.

Frasier is angling to become the maître de chez of his wine club, so is holding a special wine tasting session in his apartment to try to win club members over. Needing to repair a dent in his floor quickly, he employs Niles's handyman Joe DeCarlo (Tony Carreiro) to fix it. Joe tells him he will be done by midday, but when Frasier returns home a few hours later, he finds his apartment in a state of disarray with holes in his walls and workmen everywhere. Joe tells him that when he plugged in the sander, a circuit blew and this has led to faulty wiring being discovered. At 4:30pm, the apartment is still unfinished, the water is cut off, the gas pipes are damaged, and his guests will arrive soon. Martin tells his sons to give him all the cash they have, which he then offers to the workers to finish the job quickly.

The KACL support staff are indignant when Kate refuses their annual 5% raise. However, they are also too frightened to confront her about it. Even though the decision does not affect the on-air talent, Roz persuades Frasier to rally colleagues round in support of those who are affected (and act as their representative, in place of Noel). They march to Kate's office, but when she comes out everyone flees, leaving Frasier to argue their case. The discussion grows to a fierce argument, which escalates into intense mutual lust, whereupon they kiss passionately before Kate throws Frasier out.

Frasier and Kate have a moment of passion in the studio, in which "Bad Boy" and "Dirty Girl" accidentally broadcast their tryst to all of Seattle. Martin and Daphne are shocked, while Niles crashes his car. Kate suspends Frasier for a week after the broadcast. She comes round to his apartment later to apologize, and they both end up trapped in a service lift with a bed, a music box and some musk oil. Their passion reignites but they are able to restrain themselves before a serviceman enters.

Maris has been missing without trace for three days. Frantic, Niles fears she has been kidnapped, but her credit card transactions indicate she is merely indulging in a shopping spree in New York City, and Niles is relieved. Frasier, on the other hand, is incensed by her callousness. He persuades Niles to confront her about her selfishness. However, rather than apologising, Maris throws Niles out and demands a divorce. Frasier feels responsible, and gives Niles sanctuary at his place, but is unable to talk Maris round. Eventually Maris agrees to take Niles back on the condition that he apologize to her; but he cannot decide whether to do so.

On Christmas Eve, Frasier is excited that Frederick (Luke Tarsitano) is coming to Seattle for the first time. Niles believes he and Maris may reconcile soon, but then discovers she has cancelled his credit cards and cell service. Meanwhile, a postal mix-up means the educational toys Frasier ordered for his son have not arrived. He and Niles brave the mall in an attempt to replace them.

First appearance of Frederick Crane in this series.

Niles offers horse racing tickets to Frasier; he prefers not to go, as the jockeys remind him of Maris. When Martin also declines the invitation, Frasier realizes that he has a shortage of friends in Seattle. After speaking on his show about friendship, he agrees to meet up with one of his callers. But Bob, a photographer at a discount store, likes wearing a tam o'shanter and has an passion for barbecue. But Frasier finds it difficult to break off the friendship because Bob uses a wheelchair.

Niles sees Maris‘ picture on the society page with another man. So he plans to take an heiress to the upcoming “Snow Ball,” for which Daphne offers to give him ballroom dancing lessons. When his date cancels, Daphne suggests she go with him. At the ball, Niles and Daphne decide to show everyone he is not mourning his divorce. During a tango, Niles declares his adoration for Daphne, and she reciprocates. He then realizes Daphne thought it was part of their ruse. An attractive former associate of Niles' then gives him her card and invites him to go dancing. At first, Niles declines her proposal, but then changes his mind, and takes the card.

First episode directed by Kelsey Grammer.

Diane Chambers (Shelley Long) shows up at KACL to invite Frasier to the Seattle performance of her new play. Frasier, still invites her to dinner, determined to flaunt his success and convince her he is over her, despite Niles' insistence he confront her about her leaving him at the altar.

When Maris has a minor traffic accident, the police find a scads of unpaid parking tickets. Martin refuses to exert his influence. So Roz tells Niles about an acquaintance named Jerome Belasco (Harris Yulin), who "makes wishes come true". When Jerome quickly resolves the issue, Niles is so grateful he promises to return the favor "any time". Jerome requests Frasier persuade his reluctant fiancée to set a wedding date; When Frasier meets the fiancée and learns she is unhappy in the relationship, he struggles to find a way to advise against the marriage.

Frasier feels he is alone in upholding common courtesy, and loses his patience in a crowded Café Nervosa, forcibly ejecting a man who claimed a table just before him. He is hailed as a hero, and a wave of phone calls to KACL report how people have started emulating him. So, he apologizes to the man he accosted. However, the man threatens to sue, until Niles provokes the man to ensure a counter-suit.

Niles is retained to testify in a high-profile legal action to be broadcast on Court TV; local millionaire Harlow Safford (Donald O'Connor) is, at age 78, apparently showing signs of senility, so his son is trying to get him committed. Niles has agreed to speak as an expert witness to Safford's mental instability. Frasier is persuaded by Safford that his eccentricities are merely his effort to embrace life and make the most of his health while he still can, and give something back to the world that has been kind to him. Frasier decides to testify in favor of Safford, but in court, his senility is confirmed.

Roz has to wear an unattractive lime-green bridesmaid’s dress in a friend’s wedding. The occasion starts her thinking about settling down, and Frasier suggests she look for a man with more substance than superficial flash. Soon afterwards, he and Niles see her at Café Nervosa with Niles’ least favorite patient: a compulsive womanizer called Ben Collins (Michael Mitz). He shares this with Frasier, as one therapist to another, so Frasier cannot tell Roz without contravening his professional ethics. So Frasier struggles to tell her without giving a reason, and Roz begins to mistake his hesitance for something more than friendship.

Frasier and Roz exchange gifts on the 3rd anniversary of the radio show. Roz gives Frasier a recording of their first episode. Later that day, Frasier overhears Daphne on the phone with her mother, calling him a tyrant who will not allow her a trip to England, in an effort to avoid a visit. Frasier later plays the tape of his first show, and his awkward, shaking voice reminds him of his early days back in Seattle.