The arrival of Charlie's old girlfriend, Pamela Rush, interrupts Kirsten and Charlie's wedding plans. She claims that Charlie fathered her four-year-old son, Spencer. Meanwhile, Will plays matchmaker for Bailey, who is still grieving over the death of Jill, by trying to set him up on a date with school friend Sarah Reeves. Justin returns from Europe and Julia learns that he was not alone. But she has yet to tell him that she spent her summer getting to know Jill's brother, Griffin.

Claudia breaks her arm while ice-skating, and Ross worries about her future as a violinist. Julia gets Griffin a job at Salinger's Restaurant as a busboy after seeing his poor financial status, but Griffin does not show up for work on his first day and Charlie fires him quickly on the second day when Griffin slacks off, talks back to Charlie and almost gets into a fistfight with him. Meanwhile, Bailey and Sarah's relationship starts to get serious. A fortuneteller tells Kirsten that she would not marry Charlie. She convinces him to take dancing classes for their wedding, and they fight. Elsewhere, Julia sees Justin with another girl, and he is openly mean to her after learning that she has been spending time with Griffin because of his bad guy reputation. Julia gets upset with Griffin for not being romantic and getting fired from the job where Julia vouched for him. Griffin resents Julia trying to change him and that he never asked for a job or her charity or being romantically involved with her. Julia continues to mistakingly think that Griffin's lackadaisical attitude and his inability to express any emotion stems from indifference, similar to Julia's own over her parents deaths.

After a woman mistakes Sarah for someone else's daughter, she decides to try to find her birth mother. They find her in the phone book, and Bailey calls her behind Sarah's back and goes to meet her. She's an actress named Robin Merin, and she tells him that she does not want to meet her. To protect Sarah's feelings, Bailey tells her that the woman he met was not her mother, killing her hopes. Meanwhile, Charlie tries to potty train Owen so he can go to pre-school. Claudia is shocked when she finds out that Kirsten is dating someone else. She tries to have Kirsten return to the family, but Kirsten tells her that she has to move on. Justin's friend Allison comes from England to visit him. At first, Julia is jealous, but they really get along. Allison comes on to Julia, who later reveals her secret that she is gay. Julia advises Allison not to run away from her problems.

Bailey is feeling distant from Sarah because she is spending all her free time with the band. She and Matt get robbed in an alley, and they end up in the hospital with minor injuries. Matt kisses Sarah, and she tells Bailey. They have another argument, and she says she has to be more on her own. Meanwhile, Julia joins a photography class after Justin turns it down, and she meets a boy named Ian. They are taking pictures on the street when she spots Justin strolling with another girl, named Corey (guest star Kate Hudson). Corey flirts with Justin, and Ian kisses Julia. Claudia grows tired of Jody after she drags Claudia to a party where she is pressured to make out with a boy. Claudia tells Jody she wants things to be the way they were, and not hanging out with boys all the time. Also, Joe arrives back in town and is worried because they might lose the restaurant after Charlie reveals that Kathleen has put together an investment group to buy the building housing it in order to close it down in retribution for their breakup. The angry and frustrated Charlie goes out, gets drunk and gets arrested for starting a brawl at a local bar, and Joe is forced to bail Charlie out of jail. Everyone unfairly blames Charlie for what is happening to the restaurant (yet no one thinks about blaming Kathleen). Claudia tells Charlie she would not forgive him because the restaurant was a piece of their parents. At the end, a devastated Charlie goes to Kirsten asking her to get back together, but it is too late. She tells him that she will marry Michael the next week.

One week later

The scorned and vindictive Kathleen is still hell-bent on taking and closing down the restaurant as part of her personal vendetta to make Charlie suffer for breaking up with her. Everyone continues to unfairly blame Charlie for dumping Kathleen which has led to her turning against the Salinger family. Ostracized by everybody he knows, Charlie is forced to ask Jake for help to find a way to stop the restaurant from going out of business. At the same time, Charlie continues to try to win back Kirsten by literally stalking her at her job, and later showing up at her pre-wedding party urging her to come back to him. Charlie eventually shows up at Kirsten's wedding and she finally runs away with him. Meanwhile, Bailey breaks up with Sarah because he does not want her to feel sorry for him as he plans to leave town after graduation for college (without saying goodbye to anyone) to start his life over. A little later, Jake tells Bailey that he has to decide what to do with his college money: Jake can use Bailey's $40,000 scholarship money to save the restaurant by bribing the building owners not to sell the restaurant to Kathleen and her investment group, or send Bailey away to college. After thinking about it all night, Bailey reluctantly decides to save the restaurant and stay in town to be close to Sarah. Also, Julia and Justin decide to break up due to their differences and indifference to each other's recent actions. Elsewhere, Claudia becomes more tired of Jody and her boyfriend, so they split up. Claudia asks Ross to be her tutor as she starts playing the violin again. At the end, as the family sorrowfully looks at the closed down Salinger's Restaurant, Joe arrives with good news that the sale for the restaurant somehow fell through and the restaurant is now back in their ownership. Neither Charlie or Bailey tell anyone the truth, and they quietly reconcile during the celebration.

Kirsten becomes more and more depressed, and not even a job as Salinger's hostess makes her feel better. Charlie tries to help her as much as he can, but nothing seems to work, yet he stubbornly refuses to give up on her. He wants her to get better fast and medication can take six weeks. Meanwhile, Cooper lets Bailey crash at his place. Julia starts to date him, and things get awkward between the three of them. Bailey asks Julia not to date his friend, but she decides to date him anyway. Later, she realizes how much she and Cooper do not have in common. Bailey is looking for a new place and finds a cheap apartment with a good roommate, an older woman named Callie Martel, who Sarah really does not like, but Bailey tells her not to worry. Claudia has to find a plumber to fix the pipes and gets yelled at by Charlie because it costs $3,000, but she says she's only age 13 and that was not her job.

Julia meets a Stanford teacher, who is also a writer. They become friends, and she gets inspired to write. She asks for his opinion, and he tells her that she's not good. She is devastated, but after she finds out that her mother only chose music after college, she realizes that it is too soon to decide what to do for the rest of her life. An old violinist colleague of Diana named Avery Baltus introduces himself to Claudia and tries to develop in her Diana's talent with the violin. Claudia gets overexcited and Charlie tells her not to hurry, that she still has her whole life ahead, but she is stubborn and decides to enter the conservatory. Elsewhere, Bailey has the chicken pox, and Sarah takes care of him, but he does not want to deal with his guilt over cheating on her. They have a fight, but Sarah loves him too much to stay mad at him forever.

Will surprises Bailey showing up at his place for a weekend visit. After seeing how frequently (and how much) Bailey drinks beer and hard liquor on a daily basis, Will thinks Bailey drinks too much after learning that he never appears to stop. Will asks Sarah what is going on, but she does not want to talk about Bailey because of their recent breakup... because of Bailey drinking all the time. Before leaving town to return to college, Will privately tries to advise Bailey about cutting back on his excessive drinking, but Bailey convinces Will that it is no big deal. Callie asks Bailey to move into her room. Meanwhile, Grace's apartment burns down, so she moves into the Salinger house. Charlie does not want Julia to turn down Stanford. Julia, angry with Charlie, moves to Sam's so she would not have to listen to him. Charlie does not want her there, and they have a big fight. Upset over Julia invading his privacy, Sam tells Julia she should go back to the house. Seeing how drunk that Bailey frequently is, Claudia tries to get Bailey to stop drinking, but he ignores her.

The Salinger family tries to solve Bailey's drinking problem. Claudia calls him and tells a story about Owen falling down the stairs. Bailey rushes to the house, when Charlie, Julia, Claudia, Grace and Sarah confront him. One by one, they all try to show Bailey that he has a serious drinking problem. Still in denial, Bailey refuses to accept it and fights with everybody. Joe arrives later that day and tells Bailey and everyone else that his late father, Nick Salinger, also had a serious drinking problem for many years, but he stayed sober for 18 years until he died. Bailey does not believe Joe, but Charlie does and proves it to be true with stories from his childhood. They all try to get Bailey into an AA program, but he refuses claiming that alcoholism is a part of who he is, and he openly states he would rather die than seek treatment. After everybody has given up, Claudia tells Bailey that if he does not face his drinking problem and look for help to stop his self-destructive lifestyle, than he will no longer be a part of the family. Bailey leaves without saying a word.

Bailey is sober for a week. Callie gets jealous because Bailey is spending much more time with Sarah--who meets a guy at her doctor's office and they hit it off--than with her. Callie tries to help Bailey, but he tells her that she's part of the reason for his drinking. Callie goes to Sarah and tries to find out why Sarah is helping Bailey so much. In response, Sarah tells Callie that she does not want to get back with Bailey because she's dating someone new. Callie gets drunk and insults Bailey. The next day, Bailey moves out of Callie's apartment and back to the Salinger house. Meanwhile, Julia starts skipping school in order to hang out with rebel Griffin, and she starts to get an 'F' in history. Griffin tells her to go back to school, and she does. Also, Claudia is rightfully convinced that Grace is too self-absorbed with running for city council and does not care about her and Owen, so she makes up a story about a reporter wanting to meet her just to spend some time with Grace. When the ruse is revealed, Charlie gets somewhat angry with Claudia that she led Grace on, but Claudia points out that she proved that Grace is more concerned about the reporter and the publicity from the family.

After spending all summer in Europe, Julia has trouble adjusting to married life as she settles in with Griffin. Meanwhile, Claudia wants to be popular during her first day of high school, so she tries out for the cheerleading squad, but ends up with the humiliating job of being the mascot. Sarah's vindictive father presses drunk driving charges against Bailey for the accident that put Sarah in the hospital after Bailey refuses to back off from being with her. Charlie finds Owen dressing up in drag and in talking about it to Owen's pre-school teacher, Jenny, and finds himself drawn to her.

Julia packs her bags and leaves Griffin to go to Stanford, while Bailey has to leave to help move Claudia to Massachusetts for boarding school. Meanwhile, Charlie drives Daphne crazy with his overprotectiveness. Having gotten back together, Sarah and Bailey move into a new loft apartment. After many arguments, Daphne decides to move out of the house and leave Charlie.

Bailey tries to plan a perfect wedding for Charlie and Kirsten. But when his plans fail, he tells Charlie to plan his own wedding. Kirsten's parents, Gene and Ellie, come to town, but they are not supportive of the engagement because of Charlie and Kirsten's previously failed wedding in the past (from Season 2). Meanwhile, Claudia breaks up with Cody after she catches him cheating on her. Sarah confronts Bailey about his anger towards her after she called off their engagement. After an editor named Evan offers Julia a book deal, she transfers to a fine arts college and moves back home.

Daphne hires Victor as a nanny for Diana, and gets help job-hunting from Kirsten. Charlie counsels a troubled teen named Myra at work. Meanwhile, Julia investigates her parents' relationship for her written assignment, which upsets Bailey. Claudia figures out that Cameron is attacking his friends on a web page. Sarah thinks she's found her father in New York and plans to meet him, meaning that she will have to leave Bailey.

Victor turns the house into a haunted one for Owen on Halloween. Julia realizes that she has feelings for Evan. Charlie and Kirsten explore having their own baby. Bailey finds out that Will is back in San Francisco and is chauffeuring wrestlers for a living after dropping out of college. Claudia sees that Cameron has feelings for her when he tells her about his decision to break up with Alexa.

Charlie and Bailey decide to increase production of the furniture assembly line sales when a big client offers a generous fee. But Charlie is forced to cut production after Mitch has an accident and is hospitalized for a heart condition. Meanwhile, Holly gets wind of Will's feelings and growing attraction to her, which leads her to think that Bailey's marriage plan was not a good idea after all. Holly leaves to go back to England, and Will tells Bailey that he has decided to return to college. A women's magazine offers Julia a column to write and a possible job opportunity while she rekindles and consummates her romance with Justin. With college decisions weighing on them, Claudia and Todd finally sleep together.

Bailey considers moving to Philadelphia to go back to college by attending the University of Pennsylvania following Joe's advice, but has some complications when Owen does not want to go with him and Charlie tells Bailey about keeping their parental responsibilities. Meanwhile, Julia ponders a choice to moving to Washington D.C. for an internship working for the National Organization for Women, and being away from Justin and the rest of the family. After Julia tells Justin about her new job opportunity, Justin decides to transfer to Georgetown University to be near Julia in D.C. Claudia ponders about accepting a scholarship to attend the Juilliard School of Music in New York City or staying near Todd in San Francisco. Ross persuades Claudia to take the scholarship and not pass up an opportunity like this. Todd hears about Claudia's scholarship offer and tells her that he too wants her to leave, even though he does love her and it might risk ending their romance. Daphne confides in Charlie about her problems with Luke, who wants a job in Texas and leaves no time for her to be with Diana. Charlie then decides to make Luke the new partner in his furniture factory to give him, Daphne, and Diana support after Bailey tells him about moving to Pennsylvania to go to college.