Olga stops Henry just outside the door to Katy's house and takes him back to the wine cellar at Fairwinds. She and Henry strike a deal: Olga will not tell B.J. that Henry escaped, if Henry agrees to become her love slave. At Katie's house, B.J. steps outside for a minute and Katie retrieves Mike's pictures from the fire and hides them in her purse. Kim arrives to discuss WSPR business, and is skeptical when B.J. tells her that he and Katie are now together and that Mike is in Katie's past. Katie walks Kim out to the porch and Kim tells her, "I think you're lying through your teeth!" Meanwhile, inside, B.J. finds Mike's pictures in Katie's purse.
Casey and his parents are speechless when Gwen tells them the news about the baby switch and her baby's death. Casey carries on his charade of indignant innocence, but as soon as Gwen leaves, Tom confronts Casey and demands the truth. Casey finally admits that Gwen's baby must have been his, to his parents' disappointment. Tom leaves when he gets a call telling that it is time for Paul's arraignment.
Will rages at Paul through the bars of Paul's cell, but Paul still insists that he was trying to save Jennifer from Craig. After Hal tells Paul that Emily has been denied bail, Paul asks Emily to take the plea bargain so that she can be with Daniel, but Emily responds by asking Paul to marry her immediately.
Jennifer thanks Dusty, "You game me my life back," and they move toward a kiss. Just then Meg walks through the door. Jen tells Meg that she can't understand Emily's part in the deception, "How can any woman put another woman through the horror of thinking that her baby is dead?" Dusty unconsciously adds to Meg's guilt by telling Jen that she should thank Meg instead of Dusty for returning her baby to her. Meg, jealous, shows Jen the necklace Dusty gave her. After Meg and Dusty leave, Hal comes to Jen's door and says, "There's something I need you to do for me. It's important."
Hal talks to Jennifer about the charges pending against Emily. He very subtly encourages Jennifer not to press charges against Emily, pointing out that she has already lost her son now that Tom is taking permanent custody. Meanwhile, Susan discovers that Emily is in deep denial about her situation as Emily rushes to plan her wedding. Susan tells her that Hal is trying to arrange some sort of leniency for Emily and Emily insists that she won't accept Hal's help if it means selling out Paul. Later, Jennifer arrives, with Johnny in tow, and informs Emily she is not going to press charges. But, she shakes Emily to the core when she damns her to a lifetime without her own son. Hal tells Susan that Emily is going to be set free, and Susan is left to hope that Emily will see the light about Paul. A devastated Margo tries to figure out why Casey lied to his parents about his relationship with Gwen. Casey points out that Margo and Tom always expected him to be perfect and he has always been terrified of disappointing them. Later, Casey finds himself drawn to the baby's grave and it's there that he finds Gwen, mourning their baby. As Gwen tends to the grave, the two of them come together in their loss. Meanwhile, Bob visits Margo and reveals that he delivered Gwen and Casey's baby never knowing he was delivering his own great grandson. He comforts Margo about the baby's death and Margo remains crushed about her son's deception. When BJ discovers Katie's photos of Mike, he does not confront her but rather follows her to Mike's hospital room where he receives confirmation that she is betraying him. He then goes and begins making ominous plans for the WOAK telethon they are working on. Meanwhile, Jack tells Mike the FBI is off BJ's case but Jack agrees to keep working on it privately.
Lily gets a call from Keith, pressing her to make plans with him for Christmas. Holden makes it clear that he expects her to be home with him and the kids. Later, Luke asks Lily why she and Holden aren't back together. When Lily can't give him an answer, a frustrated Luke goes off. Keith shows up, and Lily announces that she's made a decision that she's spending Christmas with Holden and the kids.
At Tom and Margo's place, the tension remains high between Margo and Casey. When Will arrives and draws Casey outside to talk about Gwen, Maddie asks Margo what's going on but Margo doesn't say much. Outside, Will is sharing with Casey his concerns about Gwen not coming home the night before and Casey reveals he saw Gwen at the baby's grave. After, Casey breaks down and tells Maddie how be messed up big by sleeping with Gwen then lying about it to his parents. Maddie comforts him.
Emily gets out of jail but demands Hal let her see Paul before she goes. Hal drops the bomb that Paul is being transferred to the Statesville Prison, and Emily isn't allowed to see him. Stricken, Emily half-heartedly thanks Hal for getting Jennifer to drop the charges, but says her gratitude changes nothing because she still loves Paul and intends to marry him. Cass then arrives and he and Emily go off to work on Paul's defense strategy.
Gwen returns to her shabby room at Burt's garage. Carly shows up there with the things she left at Milltown and invites Gwen to spend Christmas with her, Jack and the kids. Gwen turns her down, admitting that everything at Milltown will remind Gwen of Billy. When Carly goes, Will arrives, having looked all over town for her. Emotional, Gwen then drops the bombshell that it's over between them.
Jennifer comes upon Meg kissing Dusty in a Santa suit at the hospital. They all downplay the awkwardness they feel, and Jennifer gives Meg and Dusty a gift. Jennifer and Dusty lock eyes as she leaves. Will is stunned when Gwen declares it's over between them. But after Will coaxes her, Gwen finally allows him to comfort her. He convinces her to join him at the Christmas Eve service at the church. She remembers how the last time she was in a church, she was there for her baby's funeral and didn't even know it. Feeling some closure, Gwen says she's glad she came, just as Jennifer and her baby walk in. Carly tells Emily to give up on Paul because he's obviously still in love with Rosanna. A defensive Emily insists Carly is wrong and snaps that Carly has no right to judge her. Carly blasts Emily for what she did to Gwen. Later, Emily shows up at Tom and Margo's, but Margo refuses to let her in. Emily accuses Margo of punishing Daniel by keeping him from his mother at Christmas and Margo eventually lets Emily in. Emily shares an emotional reunion with Daniel, but quickly goes. Outside, she breaks down. Luke overhears Keith tell Lily that they had a deal. Later, Keith ultimately relents and tells Lily to go spend Christmas with her family - but reminds her that he's the reason Luke is there to share it with them. Lily assures Keith she will never forget what he did for Luke.
Meanwhile, Luke asks Lucinda what kind of a deal Lily made with Keith and if it has anything to do with him. A blindsided Lucinda tries to cover but Luke's suspicions are only heightened. Later, a troubled Luke meets up with his friend Kevin, and takes a big swig of the spiked eggnog Kevin swiped form his parents.
Meanwhile, Lily arrives at the farm, shocking a just returned Meg and Dusty, and appalling Lucinda, when Keith enters behind her.
Emily complained to Susan that Margo barely gave her 5 minutes with Daniel for Christmas, and Susan told Emily she'd help fight Tom on that, because there was currently no custody agreement or restraint that should keep Emily from her son. Emily was grateful until Susan expressed her disbelief that Emily was still planning to marry Paul. Susan couldn't believe Emily would choose Paul if it came to a choice between him and her own son, but Emily told Susan she wouldn't abandon Paul to please anyone, including Susan.
Keith showed up at the Snyder farm with gifts, and a chill quickly settled over the room, particularly after Holden walked in with Faith and Natalie. Holden went to the barn to finish wrapping presents, Keith went upstairs to read to the girls, and Lily followed Holden to the barn. Holden told Lily that all she owed anyone was the truth, and Lily admitted then that she loved Holden and always would. They kissed, and Luke, who had just arrived, drunk, saw them kissing. When Keith approached the barn, Luke told him he should go on in and get a surprise. Keith lectured Luke about drinking after having had a kidney transplant, but the lecture fell on deaf ears. After Luke left, Keith walked up to the barn door.
Back at Emma's house, Dusty helped Faith find a picture she had drawn and put away in a drawer, but several other things fell out of the drawer, and Dusty saw that one of them was a boarding pass for a flight Meg had taken to Tampa the same day that Jennifer and he were there.
Barbara went to the jail to visit Paul. She told him that Jennifer had said she couldn't be around Barbara if she was going to support Paul after all he'd done to her, so Barbara had come to say goodbye to Paul. Paul gave her grief for choosing one child over the other, but Barbara was not apologetic about the situation, believing that it was all Paul's doing. She told Paul he was all alone now, but Emily walked up and said he wasn't alone.
Barbara left, and Emily told Paul she thought she knew a way to get him out of jail, and then they could get married like they had planned.
At the church at Luther's Corners, Jennifer, Johnny, and Kim had arrived for the Christmas Eve service, and then Gwen and Will walked in. Gwen wanted to leave, but Jennifer said they needed to talk first about the baby, and she thanked Gwen for taking such good care of him and assured Gwen that she could see the baby any time she wanted to. Gwen said she didn't think she was ready for that, and Jennifer decided to take Johnny and go home, so Gwen could have some peace at the church. Kim approached Gwen and got her to sit down with her and Will. After the service, Gwen went up to the nativity scene, then she told a stunned Will, "I want to have a baby with you."