Basil spends 40 pounds advertising in a classy magazine, hoping to attract some upper-class clientele; he's pleased when Lord Melbury arrives at the hotel, but unhappy to hear that a confidence man might also be at the hotel, preying on his new, wealthy guests.
Basil arranges to have some contractors come and put in a door; Sybil has told him to use Stubbs, but Basil, sure that he can save some money, hires a cheaper contractor. He and Sybil then go away for the weekend, leaving Polly in charge. She, however, hasn't been getting much sleep lately, and leaves Manuel in charge while she takes a nap. The contractors arrive, and, as Sybil predicted, make a total mess of the job, leaving Basil to hire the more expensive contractor to fix things up.
The temperature is rising in Torquay, and Basil's temper is rising right along with it. Sure that he's seeing illicit relations happening everywhere, Basil feels that it's his duty to put an end to the depravity. Unbeknownst to him, all the couples are friends of each other and Polly, in town for a wedding. To make matters worse, there's also an attractive Frenchwoman staying at the hotel, flirting with Basil.
Basil has received word that some Hotel Inspectors are coming to do a covert inspection of all Torquay seaside hotels for the tourism guide. Sure that he's sniffed them out, he fawns over the guests he believes to be the inspectors, while being particularly insulting to the rest of the guests.
In an attempt to attract what he considers to be the "right sort" of guests, Basil plans a Gourmet Night, with the help of his new chef, Kurt. Kurt, however, has been trying to attract the attention of Manuel, and when he's rebuffed, takes solace in the bottle. By the time the guests arrive for Gourmet Night, Kurt is passed out on the kitchen floor, and dinner is nowhere in sight. Basil hastily makes arrangements to have a gourmet dinner supplied by a chef in town, but his broken-down car puts a damper on those plans.
Sybil is in the hospital, but has left Basil with a list of things to be done while she's out of commission; first and foremost, he's to hang the moose head in the lobby, if only to get it out of the way. Basil does this, just not very well; it falls on his head one time too many, giving him a concussion. Basil ends up in the hospital with Sybil, but sneaks out to go back to the hotel, where his head injury causes him to be more insulting towards the guests than usual.
Mrs. Richards might just be the one person in Torquay who is cheaper than Basil; she refuses to turn on her hearing aid, as it wears down the batteries. The fact that she can't hear a word that anyone is saying is only an inconvenience for other people, not her. Basil is having some hearing problems as well: he doesn't want Sybil to hear about his betting, and winning, on a horse race. Sybil sees him with the money; Mrs. Richards claims to have lost some money, and it looks like Basil is going to have to turn his winnings over to her in order to stay out of trouble with Sybil.
Basil is impressed and at his fawning best when not one, but two doctors (husband and wife) check in to Fawlty Towers. All is sunshine and roses until he discovers that Mr. Dr. Abbott is a psychiatrist, and then tries his best to avoid the Abbotts. Unfortunately for him, the man in the room next to the Abbotts has attracted Basil's attention as well; trying to catch him out for bringing a lady-friend in to the hotel contrary to policy, Basil manages to make a mess of things, incurring great interest from Dr. Abbott and great wrath from Sybil.
Some American guests give Fawlty Towers an international flair, but their demands for American food, including a Waldorf Salad, leave Basil wishing that they'd stayed on their side of the Atlantic. An attempt to get Terry the chef to stay and cook for them falls through, and Basil has to try to make dinner for the loudly complaining Americans. The other guests, seeing that the Americans are getting results, begin complaining as well, until Basil gives them all an ultimatum.
A hotel patron dies while staying at Fawlty Towers, and Basil mistakenly thinks that the death is because of some kippers that were "off". After a frantic rush to get rid of the incriminating evidence, he finds out that the kippers aren't at fault, but now Basil has to find a place to put the body until the undertakers come; unfortunately, eveywhere he puts it seems to upset the guests who are still in the land of the living.
Basil and Sybil's anniversary is approaching; sure that he's forgotten it as usual, Sybil makes plans to go golfing with her friends. Basil, however, hasn't forgotten; he's planned a party and invited their friends; then has to explain why Sybil is missing from her own party.
Manuel has a pet: a Siberian Hamster; Basil, however, believes that the pet is not a hamster, but a rat, and orders Manuel to get rid of it before someone sees it... someone like the hotel inspectors who are coming around. Manuel loves his hamster though, and can't bear to lose it; unfortunately, this is exactly what he does. The hamster is loose in the hotel, and both Polly and Manuel rush to find him before either Basil or the hotel inspector sees it.