At the Great Northern Hotel in the small town of Twin Peaks, FBI Agent Dale Cooper is lying on the floor of his room after being shot three times in the torso while Deputy Andy Brennan is frantically calling for him on the phone. An elderly and seemingly senile waiter comes into the room with a glass of warm milk and asks about Cooper's well-being, confused as to why he is lying on the floor, before hanging up the phone and seemingly not understanding Cooper's request for a doctor. The waiter has Cooper sign the bill, which includes a gratuity. The waiter warns him that his milk is going to get cold on him, before leaving the room, as he smiles at Cooper and tells him that he knows from somewhere.
After the waiter leaves, an impossibly tall man suddenly appears in the room. The giant talks to Cooper in a gentle voice, telling him to think of him as "a friend", before telling him three cryptic hints, asking him to believe him if they come true: "There is a man in a smiling bag", "The owls are not what they seem" and "Without chemicals, he points". Cooper asks the giant to explain what he means, but he apologetically replies these things are all he is permitted to say. He then asks Cooper for the ring on his pinky finger and promises to give it back once he finds out the truth. Before he disappears into thin air just as suddenly as he appeared, the giant says that there is one last thing he needs to tell Cooper: "Leo locked inside hungry horse": there's a clue locked inside Leo's house.
At the One-Eyed Jack's, Jerry Horne gives Blackie his fix of cocaine while his brother Ben attempts to use the services of the newest hire, unaware that it's his own daughter Audrey. She hides her identity from him before Jerry alerts him to trouble, leaving Ben to reluctantly leave the room, promising to be back later. Alone and quite shaken, Audrey breathes a sigh of relief.
In the morning, the weakened Cooper is still lying bleeding on the floor, revealing to Diane through his dictaphone, that he had put a bulletproof vest on during the undercover sting. But he had folded it up to get a wood tick when the gunman came at him, meaning that the vest only took two of the three shots fired at him. Cooper starts listing his wishes, sure that he is about to die from the blood loss, before he quietly realizes that his ring, which the Giant asked for, really is missing. Just as he loses consciousness, Sheriff Harry Truman and his deputies knock down the door to the room and find him.
Hours later, Cooper comes into the hospital. Relieved at seeing him awake again, Harry asks him what he remembers about his shooting, and Cooper says that he didn't get a look at the gunman's face, as they were wearing a mask. Lucy recaps the last night's dramatic events to Cooper: Leo was shot and incapacitated, Jacques was strangled to death, there was a fire at the mill. Pete and Shelly were brought to the hospital with smoke inhalation injuries, Catherine and Josie have gone missing, and Nadine is in a coma from her attempted suicide with sleeping pills. Cooper insists on getting back in the field despite Doctor Hayward's wishes and says that the next step is searching Leo's house. As he leaves the hospital with Harry, Cooper sees Jacques being wheeled past them in a body bag, but the bag doesn't appear to be smiling.
At the Palmer household, Maddy Ferguson tells her aunt Sarah about a strange dream she had, something to do with the living room rug. Sarah asks her to elaborate but is distracted when Leland enters the living room dancing while singing a jolly tune, with his hair having turned completely white, a transformation that shocks Sarah and Maddy. Leland just takes their discomfort in strife, cheerfully bidding them good morning, before leaving the house while still singing, prompting Sarah to follow him and begging him to come back. Now alone, Maddy, to her horror, sees a blood stain appear on the rug.
At the Great Northern Hotel, Ben and Jerry try to figure out their next actions. Leland then walks into their office, still singing and dancing to show tune. Finishing his song, Leland grandstandingly declares that he is back and ready to resume his work.
Cooper and Harry go to Leo's house to find any evidence connected to Laura's murder. From scanning the room, Cooper deduces that Leo was trying to kill someone with an ax when someone from outside intervened and shot him. Deputy Hawk shows up with what he found in Leo's truck: another copy of Flesh World, and, more importantly, a gasoline-soaked jacket, linking Leo to the fire at the sawmill. Albert Rosenfield arrives at the scene, and Andy accidentally steps on a loose plank on Leo's porch, revealing a drug stash hidden underneath it.
Maddy and Donna meet at the diner to discuss the last night's events where Maddy hands over Laura's sunglasses. Donna receives a note that tells her to look into Meals on Wheels, an enterprise Laura was involved with before her death.
Albert subjects Cooper to a medical examination of his own. He tells him that whoever shot him was right-handed and between 5'6 and 5'10 tall, and adds that he hopes to have ballistics ready later this afternoon. Deputy Andy walks in and tells Cooper that he has a lead on the "Leo locked inside hungry horse" riddle, telling him that he has found out that Leo was recently held in custody for a day in the Hungry Horse jail in Montana. The date, February 9, 1988, is the same day the Teresa Banks murder took place, so Leo has an alibi.
The one-armed shoe salesman, Phillip Michael Gerard, wanders into the Sheriff's Station, telling Lucy that Harry had invited him to drop by whenever he had the time. Lucy asks him what Harry wanted to talk to him about, and Gerard claims that he wanted to buy some shoes from him. He then takes a long look around the station, with a crazed grin on his face, something which slightly unsettles Lucy.
Harry interrogates James Hurley about drugs in the gas tank and the tape he stole from Dr. Jacoby's office. James, trying to cover over Donna and Maddy, claims that he was acting alone and was only trying to aid the investigation. Harry says that while he believes his intentions were pure, interfering in the investigation was not smart. Regarding the drugs in his tank, James tells Harry that he perfectly well knows that he would never have anything to do with drugs and that it was probably Mike and Bobby that planted it on his bike. Harry admits that he also believes that this is the case. James then says that he has a hunch that whoever Laura talks about on her tapes might not be Leo or Jacques, pointing out that Laura had associated this mystery man with fire. James remembers that Laura had on a previous meeting recited a "scary" poem about fire to him, and had asked him "would you like to play with fire, little boy? Would you like to play with Bob?" Harry asks James to elaborate, but he admits he isn't sure what Laura meant; she was often on drugs when they met and she would say a lot of "nutty" stuff. Cooper then steps in, asking James for his half of the pendant. James, amazed that Cooper knew about the pendant, hands it to him, telling him he found it in Dr. Jacoby's office. Cooper is surprised to learn that Jacoby had the pendant, as he had believed that the doctor had nothing to do with the case.
Donna walks into the station to check on James, wearing Laura's sunglasses and behaving in a less restrained manner.
Cooper tasks Andy and Lucy with reading through the last year's issues of Flesh World to find a photo of Teresa Banks, a victim of a similar murder that happened in a nearby town of Deer Meadow. Then he and Harry go to the hospital to question Dr. Jacoby about Laura's pendant he dug up in the forest and the recent attack. Jacoby admits that on the night after Laura's body was found, he was shadowing Leo Johnson, believing he had something to do with the murder. But he eventually lost Leo's trail in the woods. Coincidentally, however, he happened to spot James and Donna from a distance. He observed them talking together, but wasn't close enough to hear what they were saying. He then saw them burying something under a rock, and he decide to take it for himself. He then muses on the pendant, a divided heart, saying that Laura herself was a divided heart, leading a double life and he believes Laura had decided to end her life that night — she allowed herself to be killed. Cooper then asks Jacoby about Jacques' death. Jacoby says that he was too out of it to remember anything clearly, but he does remember that there was a peculiar smell that night, something like scorched engine oil.
Bobby Briggs visits Shelly in the hospital and tells her that Leo is going to prison for his crimes and he isn't going to hurt them anymore. Cooper and Harry meet Ed at the hospital, where he is waiting on news about Nadine. Ed talks with them about his past with Norma and Nadine. They are interrupted when James shows up to speak with his uncle. Cooper then catches a glimpse of something in a nearby room. He sees the body bag used to transport Jacques from earlier, hung up to dry, with its zipper open. He notices that it is shaped like a smile.
Bobby meets his father in the diner where they have a heart-to-heart talk. Major Garland tells Bobby that he had a dream last night in which he saw a vision of Bobby's future and that in this vision, everything had turned out well for him, and that has filled him with hope and optimism for his son. He gives Bobby a firm handshake, wishing him nothing but the best in all things, and thanking him for sharing this moment with him. He then leaves the diner to back to work, telling Bobby that they will talk later. Bobby is deeply moved by what happened and reconsiders some of his life choices. He then thinks back to Leo attacking him last night and remembers that Hank Jennings fired the shot that saved his life.
At the Sheriff's Station. Cooper, Albert, Harry, and the deputies look over what they have found out so far about Laura's murder. When Andy starts weeping again at the sadness at it all, Albert sees it fit to crack another joke at his expense, causing an outraged Andy to tell him off and storm out the room, while Cooper gives Albert some admonishing side-eye. Cooper summarizes that with Leo in a coma and Jacques dead, there is still the matter of the mysterious third man, who they don't know the identity of yet.
Pete Martell is released from the hospital and brought to his house by Harry. Pete finds that Josie has left a note behind, stating that she has gone on business in Seattle, something which according to Pete she does fairly regularly. Harry then says they have not found Catherine, and advises him to prepare for the worst. A mysterious caller calls Pete's house from the Great Northern and after finding out Josie is not there makes a call to Hong Kong.
Hank comes to the hotel to talk to Ben and Jerry about his recent actions, saying that he hasn't been able to search Leo's house due to the police presence, much to Jerry's frustration. Ben says they shouldn't dwell on it, as he is certain that the fire at the mill will be blamed on an insurance fraud conspiracy between Leo and Catherine, just as he planned. Hank asks what they should do with the recovered ledger, but Ben tells that as he is merely their henchman, he shouldn't worry about that; he and Jerry will think of something.
Audrey is brought to Blackie's office where she receives a harsh warning from the manager. Meanwhile, the Palmers have joined the Haywards for dinner. During the meal, Leland is full of joy while others are downcast and grieving. Meanwhile, Donna pulls Maddy aside, explaining that she has dug into the Meals on Wheels and she has taken on Laura's route to find out more about her clients.
In One-Eyed Jacks, Audrey is left alone and locked in a room. Realizing that she is in way over her head, she prays for Cooper to come and save her.
Back at the Great Northern Hotel, Cooper goes to bed. Just as he is about to fall asleep, the giant from before once again appears in the agent's room. He apologizes for waking him and explains that he forgot to tell him something. Cooper tells him he was right about the smiling bag and then tries to ask questions, but the giant gently shushes him, telling him that it is "better to listen, than to talk." The giant tells him that he shouldn't look for all the answers at once, as "a path is formed by laying one stone at a time". He explains that "one person saw the third man"; three might have seen him, but they haven't seen his body. Only Cooper knows the person who has, and that person is now willing to talk. He ends the conversation by stating that Cooper has forgotten something and disappears, leading the agent to pass out.
At the hospital, Ronette Pulaski wakes up from her coma and sees a nightmare of Laura being brutally murdered by BOB.
Tropes:
- Accidental Proposal: During his youth, Ed made a drunken proposal to Nadine in jest after finding out about Norma dating Hank, and she accepted, much to his horror.
- Aw, Look! They Really Do Love Each Other: Pete reminisces about his marriage to Catherine, saying that despite bad moments, they still loved each other.
- Awesomeness by Analysis: Rosenfield quickly figures out the physical attributes of the person who attacked Cooper from a check-up.
- The Brute: Hank is hired by the Horne brothers to be the muscle of the operation.
- Bulletproof Vest: In this episode, we hear that Cooper wore one when he was shot, which saved his life, even if he had folded it up to get a wood tick.
- Cool Shades: Laura's sunglasses look great on both Maddy and Donna, even unlocking the latter's wild side.
- Dissonant Serenity: Leland is completely calm and even amused after Harriet's heart-rending poem dedicated to Laura while his wife completely breaks down.
- Even the Rats Won't Touch It: Whatever green mass is served as the hospital food makes Pete cringe and put his oxygen tubes back in.
- Heroic Willpower: Cooper claims that his will can make his body heal faster... but only if others help him.
- Jerkass to One: Rosenfield picks on Andy specifically throughout the episode, and the latter blows up on him.
- Locked into Strangeness: Leland's hair turns white after the murder of Jacques Renault.
- Major Injury Underreaction: Cooper doesn't make a big deal out of being shot, calmly talking to the waiter while lying on the floor of his room.
- Manly Tears: Bobby sheds them after his father tells him about his vision of a happy life.
- Or Was It a Dream?: The appearance of the giant might be a dream that Cooper had after being shot, but Cooper notices that his ring has really disappeared.
- Our Giants Are Bigger: A giant appears to Cooper to give him convoluted hints.
- Parental Incest: Thankfully averted, as Jerry Horne saves his niece by knocking on the door to whisk Ben away.
- The Patient Has Left the Building: The day after being shot, Dale Cooper decides to leave the hospital to carry on with his investigation, even if Dr. Hayward says that he must stay.
- Scatterbrained Senior: The waiter displays signs of senility, not understanding Cooper's request for a doctor.
