Danni McGregor secretly enters the electrifying and dangerous Snowy River cross-country race — an annual race created in honour of her father's famous ride years before. Then, a mysterious American appears, determined not only to win the race at any cost, but also to challenge Matt McGregor himself in the original death-filled ride down the mountainside.

Matt suggests to Jack Kelly that he work for Kathleen in exchange for food and board. Reluctantly, he agrees to do so. Jack and Kathleen argue from the start, but obviously need one another. Oliver Blackwood continues his efforts in trying to undermine Kathleen's hold on her land. Rob and Luke court danger to win Victoria's affections, chasing down a wild stallion. Matt must intervene when Danni is severely punished by the new teacher.

Matt McGregor finds he has a competitor for Kathleen's affections when his mate, Steve Page, arrives at Paterson's Ridge and becomes smitten with the fiery Kathleen. Kathleen's new Braham breaks loose, and she gets caught in the middle of a sudden storm looking for it. When she hasn't arrived back by nightfall, Matt rides off in search of her. Meawnile, Luke starts prospecting for gold on his father's old claim.

Victoria Blackwood and her chaperone return from shopping in Melbourne, but their train journey ends when the tracks are washed away in heavy rain. Rob is sent to collect them and shares a passionate kiss with Victoria. Matt and Kathleen have a disagreement about Sean Carney's education and Emily donates a new organ to Colin's church.

Matt's old flame Anita Hargreaves returns to town after 25 years away just as her father suffers a heart attack. Matt is dumbfounded by her hospitality towards him — and Kathleen's coldness. A bitter Anita forcloses on Matt's loan, only to learn that she had not been jilted by Matt years ago, but tricked by her father. Luke strikes gold.