Anne begins her studies at Queen’s Academy, where she aims to take the First-Class teacher exam in just one year – an ambitious goal that normally requires two years. At first, she suffers from homesickness but finds companionship with her classmates Stella (the "pink" beauty) and Priscilla (the playful dreamer). The academic rivalry with Gilbert Blythe intensifies when rumors circulate about the prestigious Avery Scholarship: Anne is said to compete against the favored Emily Clay.

Parallel to this, family worries emerge: Matthew’s health remains fragile, and Marilla reveals that the Cuthberts’ entire savings are deposited in the unstable Abbey Bank. During the exam period, the Avonlea students support each other – Jane, Ruby, and Josie pass their Second-Class exams. The tension dissolves during the results announcement: Gilbert wins the academic medal, while Anne surprisingly receives the Avery Scholarship (250 dollars annually for four years of study at Redmond College).

However, Gilbert’s plans change; financially constrained, he takes a teaching position in Avonlea instead of going to Redmond with Anne. The episode ends with an emotional climax: Matthew expresses his pride in Anne ("My girl, the one I’m proud of"), while a dark premonition of coming sorrow is hinted at. Anne’s future at Redmond is secure, but family and financial uncertainties overshadow the triumph.