The season premiere opens several months after last season. It's now 1921, and we see the main characters go about their routines. Jimmy and Richard oversee the collection of booze bottles washing up on the Atlantic City shore. The bottles then get delivered to Chalky. Later at Chalky's factory, a group of KKK members in full white regalia start shooting at the factory, and many of Chalky's workers are killed. One Klansman finds Chalky and is about to shoot him, but Chalky is saved by a woman who fires off her own rifle. The Klansman shoots her dead, but Chalky manages to shoot him as the truck drives away.
Jimmy is with his wife and son, and Gillian has stopped by to help out, which frustrates Angela. Jimmy wants to take Tommy to hunt seagulls (as he and Nucky used to do), but Angela objects. However, Gillian agrees to it.
Nucky finds out from Eddie that Chalky shot a KKK member. Nucky and Chalky meet, and Nucky warns Chalky that he's the only person who's keeping him from swinging on the end of a rope. Chalky points out that without the 10,000 black people working in Atlantic City, everything would collapse. And what would happen if Chalky ended up lynched? Eli goes to talk to the Commodore about Chalky. The Commodore says not to worry about it.
Nucky speaks to the black congregation and to the Klan and promises them both that he's on their side. News arrives that the man Chalky shot has died, and Nucky tells Eli to go arrest Chalky for his own safety.
Nucky finds Teddy arguing with Margaret about going to school. Maggie says that he'd gotten hit on the hand with a ruler at school by the nun. Teddy says he didn't do anything wrong, and Nucky suggests that he might have deserved the punishment, which frustrates Maggie.
She goes to talk to the nun and the sister says that Teddy was caught playing with matches in a closet. The matchbox reads "Babbette's Nightclub". At least Teddy won't be expelled since Nucky is a personal friend of the principal.
Maggie tells Nucky about her concerns. Teddy might have developed a fascination with fire after he witnessed Nucky burn down his childhood home. She asks him to at least talk to Teddy. When Nucky and Teddy meet, the boy immediately starts to take his pants off, readying himself for the inevitable beating. However, Nucky tells him that he should mind his mother and his teachers, and offers him some money to buy candy.
Nucky goes to the Klansman's funeral to pay his respects and is surprised to see Jimmy there. Jimmy claims that the man was his high school teacher, but Nucky wonders if there are other motives for his presence. Nucky worries that Jimmy might be planning something with the Commodore, because Jimmy hasn't taken the time to confide in Nucky lately.
Meanwhile Agent Van Alden welcomes his wife to Atlantic City for a weekend visit on their anniversary. She isn't fully accepting of the wild ways of the boardwalk. When they eat at a restaurant, the waiter slyly suggests that they have all manner of ways to celebrate a special occasion like an anniversary. Nelson accepts the offer eventually but only so the feds can raid the restaurant. Later, Nelson and his wife make love in their hotel room.
There is a brief glimpse of Richard collecting pictures of happy couples and families from newspapers and magazines. He pastes them in a book. He does seem fairly jealous of Jimmy, at one point asking him what it's like to have it all.
The Commodore, fully recovered from his poisoning fiasco, calls Jimmy in to talk to him about taking control back from Nucky. He talks about hunting down the wild animals he has mounted in his study, including a stubborn bear. Jimmy listens patiently, but it's clear that he's still troubled by his changing relationship with Nucky. The Commodore arranges to take the alcohol from the blacks to appease the Klan. And also, he gets Nucky arrested for election fraud.
As Nucky is taken away, Teddy and Maggie still await his presence at the movie theater. Jimmy finally opens the wedding gift he received from Nucky. He pushes the envelope of money aside, but seems disturbed by the other thing in the box: a figurine of a father and son hunting. He quickly hides the figurine in a closet.
Agent Van Alden says goodbye to his wife, and later he gives more money to Lucy, who is very pregnant with his child.
Meanwhile, Al Capone is frustrated with having to deal with his boss's dirty laundry. Will this be the start of his breaking out on his own?