The whole gang adjusts to running Wolfram & Hart, and quickly realize that they're going to have to weed out the evil from within the firm, both employees and clients. One client in particular, Corbin Fries, threatens to release a viral bomb on California if he isn't acquitted in his current trial. Realizing that there is no way to actually defend Fries's actions, Angel and the gang try to prevent Fries from being able to detonate his bomb. Gunn, however, ends up saving the day. After he has all law knowledge pumped into his head by W&H scientists, he makes a last-minute court appearance and gets Fries a mis-trial. Angel meets the mysterious Eve, a beautiful young woman who will be his liaison to the senior partners. Angel finds out that his new secretary is non other than Harmony. Fred is overwhelmed by running her new department at W&H. Cordelia is still in a coma. No one remembers Connor except Angel and Eve. Angel opens a package that was mailed to him and the amulet that Spike used in Sunnydale drops out. Suddenly, Spike materializes from the amulet.

Spike is back as a ghost, and cannot leave Los Angeles because every time he hits the city limits, he finds himself magically back at Wolfram & Hart. Welsey figures out that since Wolfram & Hart owns the amulet that Spike used to save the world, they now own Spike. Spike sets about haunting Angel, but ends up helping Angel dispose of a particularly awful Wolfram & Hart client. The client is Hainsley, a necromancer, who is able to put demon souls into dead human bodies so that demons can live in the human world. Using Spike's non-corporeal need for a real body, Spike and Angel pretend that Spike has betrayed Angel and tricks Hainsley into putting Spike into his own body. Then Angel is able to kill Hainsley. Spike worries that he's being sucked down into hell, because he keeps having a problem with disappearing. Spike asks Fred for help to keep him out of hell.

While the gang is having a covert meeting in the woods, trying to figure out what in the world they're doing at Wolfram & Hart, Angel kills a werewolf that is attacking a girl. The girl, Nina, who has been bitten, runs away, but they manage to track her down just in time to keep her from hurting someone when she turns for the first time. Angel tries to educate a depressed Nina on how to deal with having a monster within. When Fred takes Nina home to get some things to make her comfortable for another night of full moon spent in a cage at Wolfram & Hart, Nina is kidnapped. Fred finds out that Dr. Royce, the resident Wolfram & Hart doctor, has been keeping secrets, and Dr. Royce admits that he knows who has Nina. They rescue Nina just before she is served as the main course at an exotic dinner, and in the ensuing battle, she bites Dr. Royce. Nina, while still depressed, takes Angel's advice and tries to get on with life. Fred becomes more concerned about Spike when he disappears more often and for longer periods of time. Spike is scared and feels like someone's trying to get him, but he doesn't want anyone else to know this except Fred. Fred vows to find a way to really bring him back.

Fred still works on trying to save Spike, while Spike finds himself not only disappearing more, but now seeing other icky ghosts that warn him that something called the Reaper is coming for him. Finally, Spike disappears, but is still there, it's just no one can see or hear him. A mystic tries to help the gang find Spike, but she dies a bloody death. Spike manages to communicate the name "Reaper" to Fred, and the gang discovers that the Reaper was an insane doctor from many decades ago who tortured patients with unnecessary surgery and dabbled in the dark arts. Wolfram & Hart wanted to build their L.A. office where an old mission used to be, so to unconsecrate the ground they sacrificed the Reaper and built their firm on his blood. Turns out the Reaper has torturing the souls of people who die in Wolfram & Hart ever since. In the Reaper's reality, Spike fights off the crazed doctor and hell, while in the real reality, Fred perfects her device to corporealize a spirit. She needs a large amount of dark energy as a power source, and Gunn goes to the conduit (the panther) in the white room for help. Gunn gets Fred her power source, but says it's a one shot deal. As Fred starts up her device, the Reaper attacks her, and when Spike saves Fred, it's the Reaper that gets corporealized, not Spike. Angel and Eve lock the Reaper away, immobilized but alive, so his spirit can't do any more harm. Spike, while still a ghost, is at least not disappearing anymore, and has learned from the Reaper that he can affect things around him to a certain degree.

Lorne is stressing out, planning the firm's big Halloween party that none of his friends seem to care about or even want to attend. Lorne is such a mess that his reflection has started talking to him in the mirror. Lorne, after giving Gunn a speech on marking his territory within the firm, convinces everyone that this party is important for client and employee relations, as well as morale. With the party in full swing, Lorne tries to get his friends into it, recommending to Wesley and Fred that they get drunk, telling Spike to think positively, and joking with Angel and Eve that they should get a room. When Wesley and Fred are immediately drunk, Gunn finds himself peeing all over the place (marking his territory), Angel and Eve are having sex in Angel's office, and Spike can't help being positive about everything, they realize that something is wrong. It turns out that Lorne was so overwhelmed with his duties that he had Wolfram & Hart remove his sleep so that he could get more done. An empath demon who doesn't sleep starts making people's destinies instead of reading them, so everything Lorne said, happened. Also, his subconscious can manifest itself, which it seems to have been doing, killing off demons that Lorne didn't like. Wesley, while he and Fred are drunkenly trying to find Lorne's sleep to get it back to him, thinks he and Fred might be getting closer, but all Fred can think about is Knox. Lorne's subconscious, in Hulk form, crashes the party and starts wildly attacking everyone. Luckily, Fred and Wesley give Lorne back his sleep, and as Lorne loses consciousness, his unconscious disappears.

Bodies are turning up in East Los Angeles with their hearts cut out, and at the mention of it, the mail guy at Wolfram & Hart, Number 5 (he wears a Mexican wrestling mask with "5" on it) throws Angel across a room and runs away. It turns out that Tezcatcatl, an Aztec warrior, has returned, as he does every 50 years, eating the hearts of heroes and hunting for the talisman that will make him all powerful. The last time he was destroyed, it was done by five brothers, and all but four are dead now. It turns out that Number 5 is the only one left. Not only were he and his brothers wrestlers, but they were also champions, helping the helpless, only now, Number 5 thinks being a champion is stupid, which echoes Angel's own thoughts of late. Angel just wants to prevent Tezcatcatl from getting the talisman, while Number 5 just wants to see his dead brothers again. A battle with Tezcatcatl at the brothers' grave site gives both champions their wish. Tezcatcatl is defeated, and Number 5 is mortally wounded, his body removed by he beloved brothers. Angel decides to re-read the Shanshu prophecy about a vampire with a soul who helps save the world and becomes human again. Spike becomes more curious about the prophecy himself when he realizes that it doesn't name Angel specifically.

A band of cyborg assassins attacks Wolfram & Hart at the same time that Wesley's father, Roger Wyndham-Pryce, shows up to evaluate Wesley for admittance into the newly re-formed Watcher's Council. Even though Wesley says he doesn't want to be a Watcher again, he lets his father hang around, and his dad ends up being helpful in defusing a bomb that is carried inside one of the cyborgs. Roger tricks Wesley into opening his vault to hide some books that the cyborgs may be after, but then knocks out Wesley and steals a wooden staff with a crystal in it from another vault container. Roger tricks Angel into going to the roof with him, and attacks him with the power of the wooden staff, which seems to suck some sort of spirit out of Angel's body. As Roger calls for a helicopter to come and take him and a much-weakened Angel, Wesley, who woke up and interrogated an injured cyborg, interrupts with a gun. Wesley and Roger stand with guns drawn on each other, and Wesley tells Roger that his plan of taking Angel's will and making him a puppet of the Council will not work. Roger grabs a nearby Fred and goes to hold his gun to her head, but Wesley, particularly protective of Fred, immediately shoots his own father multiple times in the chest. When his father dies, Wesley realizes that Roger was also a cyborg, and is only partly relieved that he didn't kill his actual father. Wesley and Fred begin to talk about what he did for her, but Knox stops by to drive her home. Spike, who is getting better at affecting the world around him, tells Eve that he knows she's up to something. He asks her why Wolfram & Hart keeps him around since the amulet he used was intended for Angel. Eve asks him why he thinks it was intended for Angel. Wesley calls his parents in England.

We flash back to the past, when Drusilla turned William (Spike) into a vampire, and William believed that he and Drusilla were destined to be together... until he found his new pal Angelus shagging her. In the present, Spike receives a mysterious package that makes him turn corporeal. Suddenly, things start to go wacky at Wolfram & Hart, and people (including Harmony while in the middle of sex with a newly corporeal Spike) start going insane. Eve says that it's because there are now two heroic vampires with a soul, and reality is crumbling because more than one vampire is available to fulfill the Shanshu Prophecy. Angel and Spike consult Sirk in Wesley's department, since Wesley is on vacation. Sirk sends them to Death Valley where one of them is supposed to drink from the cup of perpetual torment. Meanwhile, Gunn goes insane and accuses Eve of being behind everything and tries to strangle her. Spike and Angel head for Death Valley and duke it out over the cup. Spike wins the fight and drinks from the cup, but it turns out to be filled with Mountain Dew. Spike and Angel return to W&H and report about the hoax. Suddenly, everyone who was insane gets better, and Eve says that the senior partners stepped in and temporarily restored order, although the Shanshu issue still has to be resolved. Sirk, who sent the vampires on a wild goose chase, is missing, along with all his stuff. Eve goes home and reports back to her lover their plan was successful, although Spike didn't kill Angel, they did beat each other to bloody pulps. Eve's lover, a long-haired Lindsey with strange symbols all over his body, says it's a start.

Harmony is miserable, working for Angel who never shows her any appreciation, and reviled by her coworkers at Wolfram & Hart. Out at a bar, Harmony talks to a cute guy, and wakes up to him the next morning... but he's dead with bite marks on his neck. Horrified, she dumps the body and tries to have a normal day. At work, Angel and the crew have been nervous about an upcoming demon conference, and when they find out that a vampire has killed the demon liaison, it throws everything into turmoil. Fred examines the corpse, and notes that the murderer was a female vampire who bit the man on the right side of the neck. Harmony is relieved, realizing that she always bites on the left side of the neck, so it's strange when, at the daily Wolfram & Hart test, she comes up positive for human blood consumption. Harmony knocks out everyone who knows about her guilt, positive that she has been framed and she can prove her innocence. She finds out that another female vampire in the secretarial pool framed her out of jealousy of her job. The two vampires fight, and Harmony dusts her opponent in the middle of the demon conference... an appropriate sacrifice to honor the death of the murdered liaison. Spike decides to go to Europe to find Buffy, but at the last minute he decides to stick around Los Angeles because it would be anti-climactic to see Buffy three months after going out in a blaze of glory.

Lindsey and Eve plot to turn Spike into a new hero, helping the helpless. Lindsey, who claims responsibility for re-corporealizing Spike, impersonates Doyle from four years ago, pretending to have visions of people that need help and sending Spike to save them. In the meantime, they also plant a parasite on Angel that makes him sick and gives him crazy realistic dreams about no longer having any purpose and being replaced by Spike. Lindsey, who is only protected from Wolfram & Hart by the strange symbols on his body, plots to make the senior partners think they're backing the wrong vampire.

A seriously disturbed and supernaturally strong young woman named Dana breaks out of a mental hospital. Angel tries to track her down because he's heard that she might be possessed by a demon. Angel finds Spike, playing the hero, trying to track down Dana himself. Angel figures out that Dana, who was orphaned and tortured when she was a young girl, is a very disturbed young woman who is also a slayer. Spike actually finds Dana, and gets his ass kicked, but luckily doesn't get staked. Andrew shows up as a Watcher representative, and is less than helpful. Spike manages to track down Dana again, but she confuses slayer memories of Spike with her own terrible childhood memories and tries to take revenge on him for the way she was treated. Dana drugs Spike and cuts off his hands so that he can't touch her anymore. Angel saves Spike and knocks out Dana. Angel is horrified when Andrew takes Dana away and tells Angel that their camp doesn't trust him anymore now that he's working at Wolfram & Hart. Spike realizes that, in some ways, Dana made him pay for some of the evil he committed as a vampire. Gunn convinces Angel not to fire Eve until they have some real evidence of what she did to him. Spike tells Andrew not to tell Buffy that he's still alive.

Angel finally gets fed up with dealing with all the evil of Wolfram & Hart, and decides he wants to quit. Just then, he gets a phone call from the hospital, telling him that Cordelia has awakened from her coma. Cordelia comes back with some stern words for Angel for making a deal with the devil and taking over the evil law firm, and she also tells of a vision of a man covered in strange tattoos. Eve, concerned about Cordelia's reappearance and her vision, tells Lindsey that Angel and the gang are on their tail. Lindsey, as Doyle, tells Spike that Cordelia is back and she's evil. Spike attacks Cordelia, but Angel protects her and sets the blonde vampire straight. Spike, Cordy and Angel connect the dots, and interrogate Eve, as the Wolfram & Hart building suddenly empties of all employees. It turns out that the senior partners built in a fail-safe, a scary demon locked away that is meant to kill Angel should the need arise. Lindsey, sneaking past security with his protective tattoos, is going to release the demon. Angel, Cordelia and Spike go after Linsdey, while Wesley, Fred, Gunn and Lorne work some magic to to get rid of Lindsey's mystical protection. Spike is left fighting guard zombies, while Angel has a final battle with a now super-strong Lindsey, and Cordelia tries to stop the process of demon-release that Lindsey put into motion. Angel just barely wins the fight with Lindsey, while Cordelia finally figures out how to stop the demon-release. The magic works, and Lindsey's tattoos disappear. Immediately, the senior partners notice him and suck him up into a vortex. The whole gang decides to go out and celebrate, but Cordelia pulls Angel aside and tells him that she has to go. The powers that be let her do this one thing before she went to join them. She's glad to see that her champion is back on track. Cordelia gives Angel a passionate kiss goodbye, and then Angel gets a call from the hospital saying that Cordelia died without ever waking up from her coma.

In 1943, we see a German submarine captured by American soldiers with demons loose and killing the confused and scared American crew. Angel is forcefully recruited by the military to save the sub, which will give the Americans technological insight that could change the course of the war. Angel goes to the sub, and finds that the demons on the loose are Spike and two other ancient vampires that the Germans had captured and were hoping to do experiments on. Angel takes what little crew is left and helps them get the sub moving again, but when the engines are broken by the enemy, and the one man who can fix them is fatally injured, Angel has no choice but to turn him into a vampire so he can finish the job. This man, Lawson, comes back to find Angel at Wolfram & Hart. He and Angel battle to the death, which doesn't take long, even though Lawson has put Angel's best friends in a precarious position. Angel dusts Lawson, the only vampire he made after he got a soul.

A local popular children's show called Smile Time has been mysteriously putting children who watch the show into comas. Angel investigates the show's studio, and is mysteriously turned into a puppet. They finally figure out that the puppets themselves are demonic, and are sucking the life out of children while masking what they're doing with a song. Angel and the gang go in, slay the puppets, and destroy their nest-egg of power. Nina, the werewolf from episode 3, comes to Wolfram & Hart to spend the full moon in a cage. She asks Angel out to breakfast, and he gets nervous about a romantic relationship. Wesley encourages Angel to pursue something with Nina, so Angel, as a puppet, has breakfast with her. Knox is still pursuing Fred romantically, but Fred pushes him away as gently but firmly as she can. Wesley still pines for Fred, but doesn't realize that she's starting to have feelings for him as well. Finally, she just has to kiss him to get him to realize, and he happily kisses her back. Gunn worries that he's losing his lawyer-mojo, and when he visits Dr. Sparrow the doc confirms that it's fading. Gunn makes a deal with the doc to give him a permanent upgrade, and in return will help with some of the red tape in the doc's illegal trades.

We see how Fred left home after college, and how her parents unwillingly let her go to Los Angeles for her graduate degree. In the present, Fred and Wesley's relationship is proceeding nicely, and Gunn, as Fred's ex, has given his blessing to his two friends. Spike is tagging along on adventures, and finally Angel, fully annoyed with the other soulful vampire, suggests that perhaps Spike should consider visiting another branch of Wolfram & Hart... like in Outer Mongolia. A mysterious coffin arrives in the Wolfram & Hart lab, and exudes a puff of a dust, which Fred mistakenly inhales. She thinks she's fine, but later she collapses and falls seriously ill, with her organs shutting down. Angel, Spike and Lorne hunt down Eve, and Lorne confirms the girl's claim that she had nothing to do with Fred's illness and predicts a dire future for the former liaison to the senior partners. A scared and lonely Eve suggests that Wesley look at really old texts for an answer. Meanwhile, Gunn goes to the white room and encounters his own image as the conduit, and his own image is less than helpful, beating up on Gunn instead of giving him any useful answers. Gunn consults with Knox, and eventually figures out that it was Knox himself that arranged for Fred's infection. Knox is the follower of an old god-like evil called Illyria, and has arranged for his god to be reborn in his favorite person, Fred. Knox also tells Gunn that the paperwork Gunn helped the doctor with is what helped get Illyria into the country. A horrified Gunn violently kills Knox. Wesley takes Fred back to her childhood home in Texas to die. Spike and Angel finds themselves bonding over their past and their concern for Fred, and they travel to England to visit Drogyn, who babysits a demon burial ground. Drogyn admits that Illyria recently disappeared, and says that they can get it back by bringing the coffin back and performing a ritual, but then everyone in the path of the coffin (between Los Angeles and England) will suffer and die. Angel wants to the go through with the ritual anyway. Fred dies in Wesley's arms, but recovers quickly, now with blue hair and scaly blue-ish skin. She stands strong, looks down at her body, and says, "This will do."

Illyria takes over Fred's body, and seems to be indestructible. Angel and the gang hold out hope that there is some way to get Fred's soul back, but Dr. Sparrow says her soul was destroyed in the fires of Illyria's ressurection. Wesley finds out Gunn's small part in Fred's death and stabs him... non-fatally, of course. Gunn is fired by Angel. Illyria, with her priest, Knox, goes to open the gateway to her world and raise her army of death. Wesley kills Knox, and Angel, Spike and Wesley try to stop Illyria, but they can't. Wesley follows her through the gateway, and is there when she realizes that her world is completely dead, and she has no army to raise. Angel and Spike are still determined to destroy Illyria, and Spike says he's going to stick around for whatever's coming next. Illyria finds Wesley and asks him to help her fit into his world, since she has no choice but to live in it. Wesley says he'll help, because he can't say no to the being that is inhabiting Fred's body and still has a few of Fred's memories.

Everyone is depressed in the wake of losing Fred, particularly Lorne who is drowning his sorrows. Wesley, fairly unstable himself, is dealing with Illyria, who is trapped in this dimension and can't really go anywhere else because, in her current human state, she would be killed by her old enemies. Angel and Spike hunt down Eve, and press her for info on the senior partners. In return for their protection, Eve tells them that the real person they should speak to is Lindsey. Gunn helps them track Lindsey to a hell dimenion where he is living a strange idyllic suburban life, but is tortured to death in his basement every day. Gunn takes Lindsey's place in the hell dimension so that Angel and Spike can take Lindsey back to Wolfram & Hart. Lindsey explains to them that the apocalypse is happening right under their noses, and as they become more complacent with the world as it is, they become less heroic. Eve loses her position as the liaison to the senior partners and is replaced by a scary well-dressed man named Marcus Hamilton.

Connor's parents show up at Wolfram & Hart after Connor is plowed down by a speeding van and gets up without a scratch on him. Angel realizes that the warlock that cast the spell to alter Connor's reality and everyone's memories is sending him a message. The warlock, Cyvus Vail, tells Angel that he needs Connor to fulfill his prophecy and kill Sahjhan once and for all. Angel gives Connor, who is a regular college student at Stanford, a quick lesson in fighting, and Connor confronts Sahjhan. In the meantime, Wesley has been trying to figure out why Angel is acting so strangely around this boy, and does some investigating. He realizes that Angel altered reality, and confronts him while Connor is losing his fight with Sahjhan. Wesley breaks the spell, and everyone's memories come rushing back. The feral fighting Connor comes back just in time to kill Sahjhan, but when Angel talks to Connor afterwards, he still acts like the normal boy he's been. Angel sees a hint that Connor might have his memories back, but Connor continues to act like a normal boy, and goes home with his parents. Gunn is still in the hell dimension, being tortured to death every day. Marcus Hamilton shows up to make him an offer to get out, but he cuts off Hamilton and decides to stay. Spike tries to "test" Illyria to figure out her powers, but spends most of the time getting his ass kicked.

Illyria goes to the scary suburban hell and saves Gunn, bringing him back to Wolfram & Hart and reminding everyone that they now owe her. Wesley has become oddly attached to Illyria, but Angel says that they have to find a way to kill her, she's too dangerous. Gunn tries to get back into the swing of things, but can't bring himself to represent his new clients, the Fell demons, who are trying to get a woman to agree to give them her baby so that they can worship him for 13 years and then sacrifice him. The shell that Illyria inhabits cannot contain her power anymore, and when she becomes unstable and starts erratically jumping through time, she realizes that the gang is plotting to kill her. She kills Spike, Wesley, Lorne, and Angel before they can get to her, but then Angel gets caught her her time "wake." Angel convinces her to let Wesley use a device that will take some of her power away, letting her live instead of self-destructing. Illyria is left crushed, with much less of her incredible strength, and no power to open portals or control time. Angel realizes that Illyria might be valuable in the ongoing fight against evil, and the slow apocalypse that Lindsey described. Angel undermines Gunn and tells him that the Fell demons have a right to the woman's baby.

Angel and Spike travel to Rome not only to retrieve the head of an important demon leader, but also to rescue Buffy from the clutches of their old nemesis, The Immortal. When they arrive, they are shocked to learn from Andrew that Buffy doesn't need rescuing, in fact, she's happily dating The Immortal. Blinded by their obsession with Buffy, Angel and Spike lose the demon head, and try to get it back with the Italian office of Wolfram & Hart by paying a ransom. Instead, all they get is a bomb. Andrew ends up lecturing the two vampires on how they need to grow up and move on, and with only a brief glimpse of Buffy dancing in a night club, Angel and Spike return home empty-handed. When they get back to Los Angeles, the demon head has already been delivered, with a nice note from The Immortal. Fred's parents show up at Wolfram & Hart to visit her, and Wesley is about to tell them that she has died when Illyria shocks him by doing an eerily perfect Fred impression. Fred's parents are ecstatic, but Wesley just finds himself more and more horrified. After they leave, Illyria tells Wesley that she sort of enjoyed it, and wants to now explore Fred's relationship with Wesley. Wesley tells her that will never happen, and she challenges him with the fact that he still loves her. He insists that he loves Fred, not Illyria.

Angel's behavior becomes stranger and stranger, and his friends start to worry that he's going over to the dark side. When Drogyn arrives telling them that Angel sent an assassin after him, the gang realize that Angel has been turned by the senior partners, and they worry that he even had something to do with Fred's death. Just after Angel is initiated into a very evil cult called the Circle of the Black Thorn, his friends confront him. He fights with them, and then produces a glimmer, to hide them, and admits that it was all a ploy to get himself into the Black Thorn. He didn't have anything to do with Fred's death, but he decided to use it to his advantage and make people think he did. Angel tells everyone his plan to take down the Circle of the Black Thorn and the senior partners, and explains that it's probably suicidal. Lorne, Gunn, Wesley and Spike tell Angel they're in.

The Circle of the Black Thorn shows Angel the real Shanshu prophecy, that a vampire with a soul will play a key role in the apocalypse, and will be rewarded for his efforts by becoming human. They wonder if Angel is playing them, to gain his humanity, but Angel swears he has no interest in becoming human, and proves it by signing away his prophecy. Angel and company spend the day as if it were their last as they prepare to bring down the evil Circle. Wesley cares for an injured Illyria, Gunn revisits his past, Spike reads poetry in a bar, Lorne sings, Angel visits Connor, and Lindsey, who has joined the team, spends a last romantic day with Eve. On Angel's orders, Spike rescues the baby from the demon cult, Gunn goes after the evil senator and her vampire lackeys, Illyria kills a car full of demons, and Wesley goes after the wizard, Vail. Lindsey takes down some demons, but is then killed by Lorne, who has told Angel that he'll do this one last thing, but then he's outta here. Angel battles Hamilton, the henchman of the Senior Partners, and is helped by his son Connor, who realized that Angel's visit was not just a social call. Wesley dies from his battle with Vail, and Illyria gives him a last glimpse of Fred before he dies and she quickly avenges his death. Angel, Spike, Gunn and Illyria meet up in an alley as Wolfram & Hart send out every available demon after them. The ready themselves for a fight to the death.