Laura and Mary start school for the first time. That is where they meet Nellie Oleson. Since Laura hasn't been to school before, she tries especially hard with her schoolwork. The students have to write an essay to present in front of the class. Laura recites what she would have written on the paper if she could have, instead of what was actually written on it.

Laura falls in love with a new student, Johnny Johnson. Johnny, who is a lot older than Laura, is interested in Mary instead. Although Mary is not interested in Johnny, Laura's actions cause tension between the sisters. When Charles finds this out, he is appalled that either of his girls is involved with Johnny.

Laura connects with a sweet, shy classmate named Olga Nordstrom, who happens to have been born with a short leg. Charles has an idea that can change Olga’s entire life, but the challenge will be convincing the child’s stubborn widowed father.

After Ms. Beadle sprains her ankle, Caroline becomes the substitute teacher. Caroline takes a special interest in helping an older student, Abel, learn to read. One day Mrs. Oleson shows up and causes Abel to quit school. Because of this Caroline quits, but returns after she convinces Abel to give school another chance.

Charles allows Laura to adopt a baby raccoon, Jasper. After being caged, the raccoon bites Laura and Jack and runs away. The family fears that Laura and Jack might have rabies until a healthy Jasper returns.

The town becomes divided when Mrs. Oleson offers to buy a bell for the church, but only if she can put up a plaque. The differences and arguing begin to affect the school children. A mute craftsman, Tinker Jones, steps in and with the help of the school children, is able to make a bell.

Walnut Grove celebrates this great day with several different competitions. There are very competitive spirits between the Olesons and the Ingallses.

After the mill closes, Charles is unable to pay off his debt at the mercantile. Mr. Hanson is forced to close the mill after one of his big customers declares bankruptcy. This was after Hanson had already shipped them a bunch of lumber. Charles had been expecting two months worth of wages before Hanson was forced to close down. Charles must taken on several jobs at the same time. Mary gets a job to help the family, while Laura does the chores at home. When the bill finally gets paid, Nels tells Charles that he thinks Charles is the richest man in Walnut Grove, since he has a very loving family.

Mary is beginning to do worse in school because she has a hard time reading the blackboard. When Mary first gets her new glasses, she really likes them. The other school children begin to tease her. She purposely loses her glasses, until she realizes that her teacher, who wears glasses, has a boyfriend.

Charles and Hansen build a bank in Walnut Grove. The banker is Mr. Sprague, a cold and heartless man. Laura becomes friends with Mr. Sprague without knowing who he really was. Mr. Sprague believes that Charles sent Laura to him to try to persuade Mr. Sprague to give a loan to Mr. Ingalls.