Anne, now 13 years old, immerses herself passionately in writing romantic stories for Miss Stacy’s school projects. Together with Diana, Ruby, and Jane, she founds a "story club," where the girls exchange self-invented tales weekly. Anne’s dramatic story about love, jealousy, and tragic deaths is praised by Miss Stacy, but the critical Aunt Josephine Barry finds the stories rather absurdly amusing.

A turning point follows when Anne, out of vanity, attempts to dye her red hair black using a hair dye from a traveling merchant—but the result is a disastrous shade of toxic green. Tormented by shame, she has her hair cut short and learns a painful lesson about self-acceptance. Despite mockery at school (especially from Josie Pye), she finds solace in Diana’s loyalty and her own realization that her red hair does suit her after all.

The episode ends with Anne’s resolution to no longer let appearances define her, while the story club continues to provide a creative outlet. Marilla and Matthew observe her development with a mix of concern and pride, as Anne slowly grows more mature—even if her imagination still plunges her into bizarre adventures.