Waterloo Road Comprehensive school is on the scrap heap. Its despondent teachers have given up trying to make a difference as they struggle to cope with their own personal problems on top of their nightmare jobs. When the headmaster has a nervous breakdown, Jack Rimmer reluctantly takes the reins. He's very aware that Waterloo Road has hit rock bottom, and he feels the pressure to make improvements -- fast. Taking a gamble, he recruits optimistic educational zealot Andrew Treneman, who wants to give up his comfortable private school job to bring the benefits of his elite education to Waterloo Road.
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The school is in mourning after the fatal car crash that killed one pupil and left another, Holly, in a coma. Everyone blames guilt-plagued Donte and Chlo for the death of the student, whose sister, Yasmin, wants revenge. She calls upon Waterloo Road's biggest bully, Hadleigh, to make sure Donte pays. Meanwhile, Izzie is reeling after Tom kisses her at his and Lorna's wedding reception, not daring to give in to her true feelings for him. Also, a battle of wills develops between Andrew and Kim, who are polar opposites in terms of their backgrounds and teaching methods. But could there be a flicker of attraction beneath their banter? Also, Steph acquires vouchers for a dinner for two - with Jack on her menu!
Andrew implements a house system at the school to encourage feelings of pride and healthy competition, but when two of the biggest slackers in school get elected house captains, the kids group into gangs. As Lorna's pregnancy continues driving her and Tom apart, she confides in Izzie that since Tom does not want the baby, she is going to have an abortion and fake a miscarriage. A cocky, overconfident new transfer, Zoe, who is heavily pregnant, boasts about how well she knows Jack. Privately, she is blackmailing him, threatening to tell everyone that he is the father unless he pays her. Meanwhile, terrified that Holly will wake from her coma and reveal that Chlo was straddling Donte when the car he was driving crashed, Chlo rushes to the imprisoned Donte to come up with a plan.
When a human-sized fluffy bunny climbs onto the school roof, the kids think it's hilarious, but Izzie is mortified to discover that it's her ex-husband, Jimmy, with a message: he wants access to their kids, and he's not getting down until she agrees. The chaos continues with Andrew's house system, as the kids run homework scams and plot revenge upon their rivals. When Andrew punishes one of the cheaters, the student throws a brick through a window, injuring Andrew. Meanwhile, when Steph's French class' grades mysteriously improve, Jack begins to think Steph may not be completely useless - but he and Kim remain suspicious. After Tom confronts Lorna about her faked miscarriage, she admits that she had an abortion. And Donte and Chlo plan to both confess to causing the crash, thinking that they can cancel each other's pleas out.
Lorna remains upbeat in the face of her separation from Tom, hoping that a sexy new look will rekindle his passion. But he is still very much in love with Izzie, and his feelings are too strong to ignore. After a student, Zak, repeatedly shows up late for school, Andrew suspects drug use, but upon visiting Zak at home, Andrew and Kim discover that Zak's mother has Huntington's disease, and he needs support rather than condemnation. Meanwhile, sticking to her pact with Donte, Chlo insists that she was driving on the night of the crash, but neither the police nor Izzie believe her. Chlo resorts to desperate measures, stealing her father's van to prove that she can drive. And fearing for her job, Steph fakes a break-in to her classroom and disposes of the incriminating coursework.
Knowing that an inspector is coming to visit, Jack arranges a school trip to ensure that the worst teacher, Steph, and the most disruptive kids are well out of the way. Andrew does not appreciate having to supervise the unruly students on the school trip to a museum, but his biggest headache is Steph. Jack is surprised to discover that the inspector, Heather Davenport, is attractive and sympathetic to the pressures that the school is under. But with one area school already closed, the spotlight is firmly on Waterloo Road. Meanwhile, finding themselves alone, Tom and Izzie can no longer fight their mutual desires. Also, Chlo discovers that the pact she made with Donte is not going to fool anyone. Donte begs her to tell the truth, that she distracted him while he was driving, but Chlo is too scared.
During an Open Day intended to impress the school inspectors, Andrew is concerned about the countless things that could go wrong. First, a bully, Lewis, threatens to beat up an openly gay pupil who subsequently starts a petition to highlight homophobic bullying at Waterloo Road. Then, Steph arrives, prompting Andrew to furiously ask Jack how they can ever expect to change the school if they retain teachers like Steph. Jack is forced to reveal that he can't fire Steph since she is blackmailing him - and he asks Andrew to make her a better teacher. Meanwhile, when Lewis corners Kim and threatens to sexually assault her, she panics and breaks down. Also, when Holly wakes from her coma, a panicked Chlo rushes to find out what she remembers about the accident. And Lorna thinks Tom might want to reconcile with her, until she walks in on a passionate kiss between him and Izzie.
It's judgment day at Waterloo Road as the staff members tensely wait to find out if the school will be closed. Traumatized by Lewis' attempted rape, Kim loses patience when a discipline panel seems to side with Lewis. When the panel decides not to expel Lewis, Jack takes matters into his own hands and sends letters home with the students, hoping to rally the parents in support of Kim. Meanwhile, having lost her husband to her best friend, Lorna feels like her life has no meaning. Also, as Chlo prepares to appear in court, Izzie advises her to tell the truth, no matter how scared she gets.