Henry tells Katie that Jennifer had been with Craig, but that Henry was afraid to tell Katie for fear that Katie would want to go back to Mike. Katie kisses Henry and reassures him, then leaves to go tell Mike about Jennifer's infidelity. Meanwhile, Craig brags to Sierra about how well he and Jennifer are working as a team on Street Jeans. He convinces Sierra that it is time for her to trust him and to stop feeling responsible for him, and they shake hands and agree to be friends. At Mike's house, Jennifer packs up and is halfway out the door when Mike tells her that he wants to try to get past her mistake with Craig. The two decide to stay together and try to make things work, even after Jennifer tells Mike that Craig had blackmailed her, threatening to tell Mike if she refused to work with Craig on Street Jeans. Mike embraces Jennifer as she cries and apologizes. Mike leaves, ostensibly to get food, but with a steely resolve in his eyes. Alone, Jennifer hears a knock at the door, and finds Katie, who accuses, "How could you do that to Mike?" Craig is on the phone at the Street Jeans headquarters when Mike comes up and punches him!
On one side of the police station, Carly asks Keith to tell the police that Lily handed him the letter, telling Keith that Lily only wrote the letter in order to free her son, Luke. Carly insists to Keith that Lily did not deliberately kill Julia. Elsewhere in the station, in front of Jack and Holden, Lily tells Luke that she planned to kill Julia. Jack immediately places Lily under arrest, in spite of Luke's vehement protests. Holden watches the police take Lily away with tears in his eyes, then he goes to visit her in her cell. He asks her pointedly if she deliberately killed Julia, or if she is covering for Luke. Lily coldly tells Holden that she killed Julia to get him back, and she is just sorry that she got caught. Tom Hughes interrupts Carly and Keith to arrest Carly as accessory after the fact. Carly turns to Jack and insists that Lily did not kill Julia. Jack tells Carly that he will call Jessica, and Jack and Carly sadly kiss goodbye. After they take Carly away, Tom tells Jack that, as long as Lily's confession stands, both Lily and Carly will go to prison. The police bring Carly into the cell adjoining Lily's cell. Carly insists that Lily must tell the truth - "I'm not losing my husband and my children because of you." Holden returns home and tells Luke that Lily acted as though she had killed Julia on purpose. Luke insists to him, "Mom isn't some psycho killer who goes around threatening people." Holden has an idea and goes to the phone saying, "I think I have a way to help your mother."
Katie has gone to Mike's house to tell him about Jennifer and Craig sleeping together. However, Katie has a big surprise in store! When she finds Jennifer at home by herself, she learns that not only does Mike know about her night of indiscretion, but Mike has NOT thrown her out and in fact has asked her to stay! Katie is indignant at first -- "Do you really think Mike wants you to stay?" But Jennifer's true regret and obvious love for Mike seem to turn Katie around and they are soon confiding in each other like long lost friends. When Mike comes home, he is truly surprised to see them talking in friendship. And when Katie leaves, she tells Mike that she hopes he can forget about what Jennifer has done.
Carly is furious with Lily! Her jail cell is right next to Lily's and she wastes no time in trying to reason with her. But Lily seems truly surprised that Carly was arrested as "accessory to murder after the fact." Lily insists that she will not take back her confession, no matter what trouble Carly is in because she believes it is the best thing for everybody. No matter how hard she tries, Carly cannot reason with her and stops trying. She calls for a guard and asks for her one phone call -- instead of calling her attorney, she calls Emily! Her friend comes to the police station with a tape recorder and helps Carly learn how it works and what to say to get Lily to tell Carly the truth so she can record it.
Lily has several visitors while Carly is gone. For whatever reason, Keith believes it necessary to remind Lily that he will see justice is done for his sister and that he is not leaving until it is. Lily tells him that he has what he wants, she has confessed -- the show is over! Keith tells her he wants to come to the sentencing to make sure her status in Oakdale society doesn't mean she gets to plea bargain.
Holden and Jessica visit Lily, too. He has enlisted Jessica's help in having Lily found innocent by reason of insanity. Jessica thinks it may work, but when they approach Lily and ask for her permission for a psychiatric evaluation, she refuses. Later, Luke asks Holden if his plan to help Lily worked. Holden admitted that it did not work, and when Luke gets upset, Holden promises to come up with a new plan to help Lily.
Jack has taken Parker to a coffee shop to try to explain why Carly is in jail. He tries his best, but Jack seems to be trying to understand the situation even as he tries to explain it. Parker and Jack agree, however, that Carly made a mistake and that everybody makes mistakes. Just as they leave, Keith and JJ come in. JJ is overjoyed to see "Dad!" Keith asks to talk to Jack alone, and when the boys are gone, they talk about the letter. Keith is surprised that Jack put Carly in jail, but Jack angrily says he didn't have a choice since Keith presented the letter. However, Jack made sure that Keith knew he thought the letter was bogus because two sets of forensic teams searched Julia's apartment and did not find the letter. Jack says he has to trust his instincts -- and Keith did not seem surprised or offended when Jack's instincts seemed to tell him he believed Lily did not kill Julia. But Jack and Keith are going to have to put their personal differences aside -- they have bigger problems! They are both horrified when Les walks into the coffee shop and announces to a terrified JJ that "Daddy is here" and that he is taking JJ.
Celia, Casey, Will, and Alison were at Al's Diner for a double date. Alison realized that she knew their waitress, Gwen, and introduced her to everyone. Alison left the table, but sent Gwen over in an attempt to fix Gwen up with Will. Will was upset because he though that he and Alison were on a 'real' date. Casey and Gwen acted very strange with each other. They acted like they had known each other before. Will and Gwen left the diner, leaving Casey and Celia alone, where they shared their first kiss. Gwen and Will parked their car behind Metro and Gwen started to come onto Will. In the midst of them kissing, Will started to think about Alison and pushed Gwen away. Gwen called Will and a freak and a loser and stormed out of the car. Will became angry and started to punch the steering wheel of the car until his hand bled. Meanwhile, Alison went to Metro to see Aaron, and they told each other how much they meant to one another.
Keith and Jack were at Java when Les showed up and presented a court order to Keith giving him full custody of JJ. Obviously very upset, JJ told Keith to leave him alone and that he wanted to stay with Jack. Les tried to explain to JJ how sorry he was for hurting him and his mother, and that while he was away he had to take Anger Management classes and now he knows what he did was wrong. Les told JJ that it will never happen again. JJ still did not want to go with Les. Keith told Les that he would not let JJ go anywhere with him. Upon hearing this, Les brought in a police officer to enforce the court order. Jack told Keith to go and find a lawyer so he could fight to keep JJ away from Les. JJ was forced to go with Les. Parker saw the whole display and became very upset. Parker told Jack that he would be very nice to JJ if Jack brought him home again. Jack and Parker went to the police station to see Carly where they all shared a loving embrace. Jack told Carly that he loved her and would be there for her every step of the way, regardless of what she had done in the past.
Carly tried to frame Lily by taping a conversation with her, but Lily saw Carly messing around with the tape recorder, and began to tell Carly lies about the night Julia was murdered. Lily pulled the tape recorder out of Carly's pocket and smashed it to pieces. Carly tried to convince Lily to tell the truth, Carly said that if Lily did not tell the truth, she would ruin her children's lives. In the midst of their argument a police officer came and took Lily to the court house.
Holden and Lucinda tried to come up with a plan to try to keep Lily out of prison. Holden and Lucinda went to the courthouse where they tried to convince Lily one more time to tell the truth about the night Julia was murdered. Lily told Lucinda to stay out of it, forcing Lucinda to make her next move. Lucinda requested guardianship over Lily and requested to have her examined by doctors. Jessica tried to convince the judge to grant Holden and Lucinda guardianship over Lily, when Keith stormed into the courtroom and lashed out thinking that Lily was trying to get out of Julia's murder.
Alison was looking at Will's hand and wanted to know what happened. Will replied that it was nothing and asked Ali to leave. After she refused she started to tend to his hand. As they talked Alison told him that Gwen said Will freaked her out. Will told Alison that she did her good deed by setting him up but it didn't work. He also told her to go back to her life and leave him alone. Alison said it wasn't about Gwen but about her. Will told her she was making too much of it. He said Gwen came on a little strong and he couldn't handle it. Alison wanted to take him to the hospital for his hand but Will refused so Ali took him home to bandage it. At Ali's apartment, she bandaged his hand and told him to take his shirt off. They shared an awkward moment until the phone interrupted them. Ali gave Will one of Aaron's shirts, thanked her and left.
Jack brought Carly a cup of coffee in the interrogation room. Carly was very worried about Parker. Jack brought her the compass for good luck. Carly continued to worry about what Lily was going to say in the courtroom. Jack tried to comfort her and told her he would stand by her side. The subject changed to Les and JJ. Jack was concerned that Les would get custody of JJ but Carly said she would be there to make sure that didn't happen. As Jack and Carly were talking they saw Lily and Jessica. Jessica came in to get Carly but Carly wanted Jack to talk to Jess about JJ. They agreed to call another lawyer in from Genoa City who handled child custody cases.
In the courtroom, Keith makes a scene after learning that Jessica was trying to get a postponement for Lily. Lily told the judge that she was willing to take her punishment. After the Judge quieted the courtroom Jessica told him that Lily has been experiencing a mental breakdown. Jessica presented the evidence about Lily's behavior after Rose died. Lily started to think about her behavior (shown in flashbacks). Jessica concluded her presentation and Lily got up to justify her actions but was cut short by Jessica. Jessica asked the Judge to delay Lily entering a plea until she had a complete psychiatric evaluation. After Tom offered no objection, he granted Jessica's request. Lily started shouting at Holden and Lucinda that they were ruining her life. Keith went after Lily but Holden stopped him. Later, Keith went to see Lily and asked her what she was after. Lily said she told the truth and repeated it again that she killed Julia and wanted her punishment. Keith told her he didn't believe her and wanted to know if she was protecting her kid. Lily didn't respond so Keith started talking about Julia's life. Before he left he told Lily that if she wasn't found guilty he would go after Luke. Meanwhile, over at Lucinda's, Holden told Lucinda that this was best thing for them to do to Lily. Lucinda apologized to Holden and told him that Lily has been going downhill since Rose came into their lives. Lucinda felt she had failed Lily. Holden disagreed putting his arms around Lucinda and hugging her.
Henry and Katie enter Java to have coffee, talking about Jennifer and Mike's situation. Katie tells Henry she thinks everything will be fine between Mike and Jennifer, but Henry questions that and directs her attention to a melancholy-looking Mike sitting by himself. Katie tells Henry she wants to go talk to Mike to find out what's wrong, so Henry goes off to read the paper. Katie tells Mike he looks like he just lost his best friend. He says he keeps picturing Craig with his hands all over Jennifer. Katie tells him he'll have to stop thinking like that if he wants the relationship to last. She asks Mike to answer a simple question: "Do you love Jennifer?" Mike says "Yes." Katie tells him sometimes love is hard, but that it can be surprising too and can lead you places you didn't expect to go. He senses she is perhaps now talking about her own relationship with Henry, and he tells her she looks really happy. She says she is happy. Katie goes back to Henry and says she bets he's dying to know what Mike said to her. He tells her he already knows, that his marriage to Katie is over and she wants to be with Mike, because he could see how they were looking at each other. Katie tells Henry that he's wrong, that he is her husband in every sense of the word and that she'd choose Henry over Mike "in a New York minute!"
Aaron gets up in the morning and finds Will's blood-stained shirt on the floor and wants to know what happened the night before. She explains that Will hurt his hand; Aaron eventually realizes that it must have been an intentional injury. Aaron worries about Ali's involvement with Will and tells her he doesn't want her to get herself in too deep; she promises she won't.
At school, 2 guys approach Will and notice his bandaged hand, then start giving him a hard time about how he might have hurt it, given his past. Will responds with equal amounts of derision, and they wander away. Celia arrives and wants to know how Will's date with Gwen went the night before and what happened to his hand. He tells her it was a stupid accident, and he doesn't want to talk about it. She leaves, and Will fantasizes about going to see Alison. He then goes to Aaron and Alison's apartment with a bouquet of flowers in his hands. He is about to knock on the door when he hears Alison and Aaron's voices; he can tell they are being intimate. He accidentally knocks against the door but leaves when Alison calls out, "Hello? Is anyone there?" As he leaves, a bud from the bouquet falls to the floor in front of Alison's door, and Alison finds it later.
Casey sees Celia at school and tells her a singer she likes is putting on a concert in Chicago, and he thinks they can arrange to go in a group. She says they should invite Will to go with them. Casey leaves, and Celia later sees Will, who is still holding the bouquet he got for Alison. When Celia asks about the flowers, he tells her they're for her, but she doesn't believe him and says he's not acting like himself. He says, "You thought I was weird yesterday?" Then he leans forward and whispers in her ear, "Well, I'm only gonna get weirder." He leaves, and Casey walks up, asking Celia, "What was that about?" She replies, "I don't know!"
Barbara has summoned Craig to the Lakeview restaurant, where she tells him she has solved all of Jennifer's problems by taking care of Craig. Paul asks what she's done, and she tells him she has given Craig money to set up his own fashion business. Paul says she's made a deal with the devil. Barbara assures him Street Jeans will be fine, saying there's going to be a trunk show at which Jennifer can show all of her designs. Paul wants to know if Craig is the one who set up the trunk show, and upon learning that he is, Paul tells Barbara that she has set Craig up to sabotage Jennifer. He leaves to go warn Jennifer, and Barbara follows him out of the restaurant.
Dusty and Sierra briefly discuss Lily' situation and agree that she couldn't have murdered anyone, and neither could Luke. But Sierra says she needs to concentrate on work, and they discuss Craig's performance to date. Dusty still doesn't trust Craig, but Sierra thinks he's proven himself. Sierra leaves to take a phone call from Lucy. Jennifer comes in to wait for Sierra, and when Dusty asks her what's wrong, she breaks down and tells him that she slept with Craig and that he has been trying to use that against her to keep her with Street Jeans. She says she cannot continue to work with Craig and wants him gone. Dusty tells her, "You've got it!" Sierra comes back into the room and wants to know what they are talking about. Dusty tells Sierra about Craig and Jennifer's night together and about the fact that Craig has been using it to blackmail Jennifer. Jennifer apologizes for not having been able to handle the aftermath on her own, in a professional manner, but she says that Craig blurs the line between professional and personal and is using it to control her. Sierra says she'll take care of the situation and calls Craig to ask him to meet with her right away.
Craig goes to the Street Jeans office and tells the 4 employees there that he is leaving to start his own fashion business, Boulevard Jeans, and will give them each a 25% raise to go with him. He convinces the 4 of them to join him, and the employees leave. When Craig gets Sierra's phone call, he goes to see her, and he first tells her how grateful he is for the opportunity she gave him by letting him run a division of Worldwide, but that it's time for him to move on. He offers her his resignation letter, which she tears up. She says, "Don't deprive me of the pleasure---you're fired!" He realizes she knows about Jennifer, and he tells her that was a personal matter between consenting adults and should not have been any of her business, except for Jennifer's inability to separate it from business. He tells Sierra that now that he is her new competition, he will bury her.
Dusty and Jennifer arrive at Street Jeans only to find it deserted. Paul and Barbara come in soon thereafter, as Jennifer realizes that her sketches and samples are all gone. Paul tells her that Barbara has set Craig up in his own fashion business and that Craig must be the one who has sabotaged Jennifer's business. Jennifer, furious, demands that Barbara leave, and Paul makes sure that she does. Dusty says that this is far from over, and says Craig is "going down." Paul agrees, saying they'll take care of Craig and give him what he deserves. Jennifer asks how. Dusty replies, "We're gonna beat him at his own game."