After leaving his uncle Iroh, Zuko continues his journey through an Earth Kingdom town where a young boy named Lee befriends him. Zuko remembers his childhood, including Azula's chilling and callous behavior towards the death of Iroh's only child Lu Ten and his own perseverance through lack of support from his father. Finally he recalls his mother's last words of encouragement to him, followed by the announcement that his grandfather Azulon has died and his mother has suddenly disappeared. Ozai became the new Fire Lord in accordance with Azulon’s supposed dying wish. Lee is kidnapped by abusive Earth Kingdom soldiers after pulling a knife that Zuko gave him. While saving Lee, Zuko inadvertently reveals his identity as the prince of the Fire Nation. Lee, his family, and the townspeople furiously turn against him because of it.

Sokka decides the group needs some intelligence to defeat the Fire Nation. At an oasis, the group encounters Professor Zei from Ba Sing Se University, who tells them of Wan Shi Tong's library in the Si Wong desert, said to contain a vast collection of knowledge. The professor and the group eventually locate the library nearly buried, but intact inside. Toph refuses to descend with the others and stays outside with Appa. Inside, Wan Shi Tong, a large spirit owl, tells the group that humans are no longer permitted in the library, as they only seek knowledge to gain an advantage over other humans. The group convinces him otherwise, and begin searching for information. Sokka discovers a crucial weakness of the Fire Nation that could end the war: an upcoming solar eclipse will prevent firebending for its duration. Wan Shi Tong catches them in their lie and refuses to allow them to leave with the knowledge. He begins sinking the library before chasing the group. Outside, while Toph is busy keeping the library afloat, Appa is kidnapped by a gang of sandbenders. As Professor Zei stays behind, too fascinated by the knowledge in the sinking library, the others escape, but Aang is devastated by the loss of Appa.

Team Avatar is stranded in the desert, without sufficient provisions to make the trek out again now that they no longer have Appa. Elsewhere, Iroh reveals a mysterious association with the Order of the White Lotus when he uses a White Lotus tile as an opening in a match of Pai Sho, his favorite game. The move functions as a message to his opponent, who then helps protect Iroh and Zuko from Xin Fu and Master Yu, who decide to take a break from hunting Toph to try and collect the bounty on the two fugitives. After a long trek and much hardship in the desert, Aang tracks down the sandbenders who stole Appa, and learns that Appa was traded to a merchant and is likely in Ba Sing Se to be sold. Upon hearing that Appa was muzzled, Aang becomes so angry that he enters the Avatar State, destroying nearly everything around him, but is eventually calmed by Katara. The episode ends with Aang and Katara sharing a tearful hug.

After leaving the desert, the group fortuitously meets Suki and attempts to lead a pregnant woman named Ying, alongside her husband and sister-in-law, through the Serpent's Pass, a dangerous route to the outskirts of Ba Sing Se. They are attacked by a Fire Nation ship and narrowly escape. Suki and Sokka attempt to rekindle their relationship, but Sokka is hesitant and overprotective due to being unable to save Yue. Meanwhile, Iroh and Zuko, assuming new identities as Earth Kingdom refugees, are also on their way to start a new life in the Earth Kingdom capital. They encounter Jet and some of the Freedom Fighters, with whom Zuko starts to bond. Aang and the group are attacked again, this time by the route's namesake. He and Katara defeat the serpent and the group finally lays eyes on the great wall of Ba Sing Se. There, Ying goes into labor and delivers her daughter, named Hope after inspiration from Aang. Sokka and Suki share their first kiss, while Aang confesses to Katara how the happiness of Ying's family reminds him how he feels about Appa and her. Aang departs with Momo to find Appa in Ba Sing Se, but is shocked to see that a massive Fire Nation drill is approaching the wall of Ba Sing Se.

Aang reunites with his friends intent on stopping the drill. Though their offer to help is initially refused by the Earth Kingdom general at the Outer Wall, Team Avatar begins finding a way to take down the drill. They determine the best way is to sabotage the drill from the inside, then deliver a final blow to the top of the structure to take it down. Battling Azula, Mai and Ty Lee, Aang successfully stops the drill with it still plugging the hole in the outer wall. Meanwhile, Jet wishes to recruit Zuko for his Freedom Fighters, but Zuko bluntly refuses. Jet becomes suspicious of the two when he deduces that Iroh heated his own cup of tea using firebending. Jet becomes intent on exposing Iroh and Zuko, while Team Avatar finally makes their way into Ba Sing Se.

Aang and the rest of the group arrive in Ba Sing Se, determined to find Appa and inform the Earth King about the eclipse. They soon discover that the bureaucracy surrounding the king, enforced by the Dai Li, the "cultural authority" of Ba Sing Se, blocks them from making contact with him. Katara devises a plan to see the Earth King by sneaking into a party at the Royal Palace. The quartet is eventually found out and greeted by Long Feng, Grand Secretariat of Ba Sing Se and the head of the Dai Li. Long Feng reveals that the Earth King has no true political power, only serving as a figurehead and is completely unaware of the war, while Long Feng and the Dai Li control the city, ensuring Ba Sing Se remains a utopia free of war. Long Feng makes an indirect threat regarding their goal of finding Appa if they speak out, noting that they will now be watched 24/7 by Dai Li agents. Elsewhere, Jet becomes obsessed with gathering evidence that Iroh and Zuko are firebenders. His final attempt, confronting the pair at the tea shop they work in, ends in his arrest and subsequent brainwashing by the Dai Li.

The episode is a set of vignettes about each of the main characters' adventures in Ba Sing Se, providing a glimpse of their personalities and private lives:

• Katara and Toph have a girls' day out in the inner city.
• Iroh provides small gestures of kindness to various people in the outer city, before venturing into the country to find a place to celebrate the birthday of his son, Lu Ten, who was killed in the siege of Ba Sing Se many years previous. Kneeling before a portrait of his son, Iroh tearfully sings "Leaves from the Vine", a folk song about a young soldier returning home.
• Aang helps a zookeeper build a new zoo outside the wall.
• Sokka accidentally ends up in a girls-only poetry club.
• Zuko goes out on a date, resisting at first but winds up enjoying himself.
• Momo looks through Ba Sing Se for Appa, finding only one of his footprints.

Note: Iroh's tale was dedicated to his voice actor Mako Iwamatsu, who had died just one week after episodes 30 and 31 initially aired.

After being abducted in the desert, Appa is traded to a Fire Nation circus, where the trainer whips, humiliates, and generally mistreats him. He eventually escapes with the help of a small boy. He later unwillingly fights a Boarcupine; he wins but is badly wounded. By fortune, Suki and the Kyoshi Warriors come across Appa and help him recover from his injuries, but the warriors are attacked by Azula, Mai and Ty Lee. Appa is forced to flee at Suki's urging, lest he be hurt in the ensuing battle while Suki's fate against Azula is left unknown. Dispirited, confused, and longing for Aang, Appa returns to his childhood home at the Eastern Air Temple, where he discovers a mysterious guru, Pathik, has taken residence in the ruins. The guru gains his trust and imparts to him Aang's location at Ba Sing Se, with a message for Aang attached to his horn. Appa arrives at Ba Sing Se, but just short of reuniting with Aang he is ambushed and captured by Long Feng, leaving the footprint that Momo found.