The episode begins with the students of St. Jude's and Constance Billard sneaking into the school swimming pool. They have a party, with drugs and everything! Dan gets a call from Serena to come join in. Just as he does, one of the revelers hits his head on the wall and falls into the pool.
Nate dives in and rescues him. Serena calls 911, as everyone takes their booze and drugs and clears the place. But someone left behind a cellphone and pics left on it are enough for the school administration to ID almost everyone present at the party. The new headmistress, Ms. Queller, warns that the ringleader will be expelled, and if no one comes forward, they will all be expelled for attending this party.
Blair, Serena, Nate, Chuck and Dan all agree to keep quiet. As Chuck says, if nobody talks, nobody gets in trouble. Dan is not so sure, however.
Rufus tells Dan he should cooperate with the administration. He wants his son to look out for himself because his classmates will most certainly do the same. Lily shows up at the gallery to tell Rufus that she's saying yes to Bart. Rufus is crushed after laying his heart on the line.
Meanwhile, Chuck is none too pleased about Nate's pining for Blair because we all know that he wants Blair all to himself. He tries to hold over B's head the fact that he slept with her in order to make her back off Nate.
Vanessa, who is filming a documentary, shows Dan footage of Chuck at the pool, taking the stolen key that got them inside in the first place. Dan confronts Chuck about the pool key, but Chuck claims he only took the key to hide from the authorities so no one took the fall. Chuck (Ed Westwick) also tells Dan he can get away with anything because of his dad's money, while Dan is in a much more precarious spot here.
Chuck then tells Blair he's going to tell Nate about their tryst. A pissed Blair bitches that Nate isn't going to believe him because Chuck is a man whore and she's so innocent, but conveniently, Vanessa has caught their entire conversation on tape. Chuck tries to take her camera, but she won't let him. Later, he offers her $10,000 (!) for the tape, and she reluctantly takes it.
Nate goes up to Blair's room to give her a love letter, and finds the pool key, sans keychain, which she took from Chuck to hide the evidence...
The next day, Rufus (Matthew Settle) goes to Lily and tells her he's still in love with her and wants to be together. He pleads with Lily (Kelly Rutherford) to claim her life back from her mother and choose him.
Later, Lily is having a boring lunch with Bart Bass, when Bart leaves the table to take a business call. This gives her pause, and reaches for her cell phone to call Rufus and tells him that she wants to be together too. They make plans to run away for the weekend and figure things out.
In a surprise move, Nate then tells Ms. Queller he was the one who broke into the school. She doesn't believe him, though, even though he shows her the key. He can't give details about how he got it... or even where the keychain is. It's obvious he's lying. Now the headmaster is even angrier.
Ms. Queller assembles the revelers to announce that Nate Archibald will be suspended. After the meeting, Dan asks Serena to give up the name of the instigator. Serena says that it was she who broke in to the pool and did not tell Dan (Penn Badgley) because she didn't want to put him in the position of having to lie for her.
Ms. Queller calls Dan into her office...
Serena (Blake Lively) goes home to find Lily packing for a weekend away. Rufus calls Lily's cell and Serena sees the caller ID. She realizes that Lily is getting back together with Rufus and begs her mom not to. Serena cares about Dan more than anything and would rather be Chuck's stepsister than Dan's. Serena then has a moment of clarity and realizes that she can't do this to Dan and has to turn herself in.
Fortunately for Serena, she somehow beats the reap and gets off with a mere slap on the wrist. Dan isn't surprised and can't help but flash a sly grin about it, having had his point proven for him in this manner..
Vanessa goes over to Blair's to give her the incriminating tape. The tape she gave Chuck was blank! Later, Blair (Leighton Meester) tells Vanessa that she went to her landlord and paid her rent for a year. She won't be indebted to anyone, and can now hate her with a clear conscience again! Vanessa is cool about it, though, and tells B that from what she saw on tape, Nate's one of the good guys.
Lily accepts Bart's proposal and doesn't even tell Rufus the real reason she isn't getting back together with him. It's very sad. At the engagement party, Bart whispers to Serena that he made some calls on her behalf and made a donation toward the new van der Woodsen-Bass library to get her off the hook. Disgusted, she leaves the party immediately to tell Dan. In a very sweet scene, they snuggle up for a cozy night of studying.
Blair asks Nate to forgive and forget. She says I love you!
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