Change can be stressful, but manager David Brent thinks he can handle it all. He's got a new boss; he's been recruited to give motivational lectures and has to integrate the serious and dull employees of the Swindon office with his own branch. Elsewhere, Tim had a new office romance and Red Nose Day gives the whole office a chance to unwind. Finchy is still a riot, Kevin still has eczema and Gareth is still the office half-wit.
Merger day in Slough means changes at the Wernham Hogg office - including a few new team members from Swindon. David manages to offend everyone at the same time while introducing his new boss and Tim actually starts to take his job seriously.
Staff appraisals bring out secret confessions; Tim still thinks of returning to school to study psychology, while Dawn reveals she always wanted to be a children's illustrator. David is getting the feeling that he is not very popular with the new employees. Tim and Rachel really hit it off, much to Dawn's discomfort. David attempts to win over the Swindon employees with a lunchtime drinking session.
When Trudy has a birthday, cake isn't the only thing on the menu. Sex toys invade the office, David is offered a second job doing management trainings and jealousy starts to brew around Tim and Rachel's budding relationship.
Tim and Rachel finally appear to have slept together and are confronted by a horrified, confused and jealous Gareth, who realizes he has feelings for Rachel. Gareth finds comfort in the company of Simon the computer geek who is installing a firewall and able to talk authoritatively on all the subjects closest to Gareth's heart. Things seem to be getting worse for David as he first finds out that the staff have given him a nickname and then is reprimanded by Neil for being incompetent.
It's Comic Relief Day and everyone in the office is feeling silly. Keith is squeezed into a bright yellow Ali G costume, Sheila has become Wonder Woman and Gareth is hopping on one leg. The hilarity climaxes when Neil and Rachel stage an impressive dance sequence from Saturday Night Fever in the reception area. Dawn's money raising idea of selling kisses results in a close encounter with Gareth's friend. Things start looking up when Tim puts his money on the table and The Kiss finally happens.
The news of David's dismissal is not having the devastating effect on the office that he would have liked but brighter things are look up since Inside Paper are writing a feature on him. The Kiss on Comic Relief Day seems to have sparked Tim into action and before confronting Dawn with his true feelings, he breaks off his fling with Rachel. David's life goes from bad to worse when he is let go from his public speaking job and in a rage, throws his former employers out of his office.