The episode begins with all six FRIENDS in Monica and Rachel's apartment. Phoebe ushers everybody to the window when she sees that Ugly Naked Guy is packing. It seems like "our naked buddy is moving," according to Rachel. Ross realizes that he could move into Ugly Naked Guy's apartment since he no longer has a place to live. Everyone is excited by this idea, and Joey wants to do the cans connected by string telephone thing. Chandler shoots Joey down. They then watch Ugly Naked Guy remove tape that is stuck "where you really don't want it."
Next Ross, Rachel and Phoebe are observing Ugly Naked Guy's apartment which is spacious and nice. They all comment on this and Phoebe suggests jokingly that she may be interested. Ross runs out to get an application. While Ross is gone Rachel heads to use the bathroom, leaving Phoebe alone. Phoebe spots Monica and Chandler through the window and is suddenly greeted with the sight of Chandler and Monica having sex and she beings screaming in shock. Rachel comes out and tries to calm Phoebe so she won't tell Ross. In order to distract him they begin jumping and screaming in fake "excitement."
Next, Phoebe and Rachel are in the coffee house. Phoebe is trying to get information from Rachel about Chandler and Monica's relationship. They see Joey and Rachel announces that Phoebe now knows. Joey is reluctant to agree that he knows, but when he finally does he is excited. He is tired of keeping secrets and wants to let Chandler and Monica know that all three of them know. Phoebe decides it would be better to have "fun" with Chandler and Monica and play with their heads, Rachel gets on board with this idea. Joey, however, wants to tell them. He suggests it in a song but Rachel and Phoebe reject him. Joey laments that he hates having secrets and then accidentally reveals Hugsy his bedtime penguin pal. To play with Chandler and Monica, Rachel will use her influence as roomate and Phoebe her sexuality. When Chandler comes into the coffee shop to get coffee, Phoebe flirts with him unabashedly.
We next see Chandler and Monica in bed with Monica telling him that he is very cute. After making a joke, Chandler explains that Phoebe hit on him in the coffee house. Monica rejects this idea immediately citing that Phoebe finds him "charming in a sexless kind of way." Chandler is insistent.
After that, in Monica and Rachel's apartment, Rachel and Phoebe invite Monica to a movie. Monica refuses, saying she has to do laundry. She invites Chandler to "do it with her." Rachel brings out a huge bag of dirty clothes for Monica to wash and Monica tries to get out of it by saying she doesn't have enough quarters. Phoebe produces a huge bag of quarters and Monica is cornered Ross comes in and says he's trying to bribe Ugly Naked Guy, who his apartment, into giving it to him. When they look across the street they see that Ross's small mini-muffin basket is the smallest bribe Ugly Naked Guy has received from potential sub-letters. Ross is frusturated that his gift doesn't match up. Rachel then tells Phoebe it's time to leave. As they are exiting Phoebe pinches Chandler's butt. Monica sees and when the girls are gone she concludes that Phoebe knows about the relationship. Chandler tries to argue that Phoebe is just attracted to him, but Monica deems this the only conclusion. It doesn't take much for Chandler to agree.
Chandler and Monica then enter Joey's apartment. They tell Joey that Phoebe knows and Joey accidentaly reveals that Rachel knows. Joey wants Chandler and Monica to tell them that "they know they know." But Monica and Chandler agree to turn the "messing" around onto Phoebe and Rachel. Joey is unsucessful in convincing them otherwise.
Next, in Monica and Rachel's apartment, Ross is upset that he can't get Ugly Naked Guy's apartment. Rachel tells him he should bond with Ugly Naked Guy over a shared interest. Ross agrees with this and decides it will be easy because they always watch Ugly Naked Guy. But it turns out that most of the things that Ugly Naked Guy is into are broken. As Ross is leaving to go get Ben the phone rings. Rachel answers and it is Chandler for Phoebe. Phoebe answers and Chandler flirts to her(Monica is right there eavesdropping) which freaks Phoebe out. Chandler invites her over to feel his "bicep... or maybe more." Phoebe hangs up quickly
and tells Rachel and Joey what happened. Rachel quickly surmises that Chandler and Monica know that they know. Joey admits to this.
Next Ross knocks on the door to Ugly Naked Guy's apartment and Ugly Naked Guy opens the door. Ross applauds his "nakedness."
In Monica and Rachel's apartment Monica and Chandler watch Rachel and Phoebe freak out over what to do. Phoebe asserts that she'll do it and goes to tell Chandler that she's excited about coming over to his apartment. They set a date and Phoebe says she is excited about them "having sexual intercourse." Joey interrupts them by calling them to the window to see Ugly Naked Guy's naked friend. Rachel recognizes the friend as "naked Ross." We see Ross drinking tea naked with Ugly Naked Guy.
Next Phoebe and Rachel are preparing for Phoebe's date. Phoebe is in a form fitting blue shirt with a skirt, all ready for a date. Across the hall Monica is preparing Chandler, asserting that he will win and she goes to listen from the bathroom. Rachel unbuttons some of Phoebe's blouse to show cleavage and she will be listening through the door. Chandler opens the door and Phoebe brings in wine. Chandler pours the wine and they awkwardly converse and chug their wine in a long silence. Chandler goes to put on music and after a quick mistake, he gets some romantic stuff. Phoebe dances for him in typical "Phoebe style." Chandler pretends to be aroused and calls her "good." Chandler offers to move it to the bedroom and Phoebe is shocked. She suggests him rubbing lotion over her, naked. He goes to get lotion in the bathroom and is freaked when he tells Monica. in the hall Phoebe is equally freaked and Rachel tries to calm her. Joey is upset that this isn't done and unbuttons Phoebe's blouse to show her bra to move things along. Monica sends Chandler back into the apartment with lotion. He and Phoebe then awkwardly embrace. They engage in a reluctant closed-lip kiss which Chandler quickly breaks. And admits that Phoebe wins. He then confesses his love for Monica for the first time. Monica enters and is touched, they kiss. Phoebe, Rachel and Joey watch, all happy that their friends are in love. Monica ends Joey's elatedness that everyone knows when she asks him not to reveal it to Ross.
The episode finishes with Ross showing his supervisor his apartment and asserting that he is over his rage. His supervisor says it may be time for Ross to return to work. But Ross looks across the street and sees Chandler and Monica in the same way Phoebe did and begins screaming.