During the trial of D'Angelo Barksdale, a mid-level dealer accused of murder, the prosecution's star witness recants her testimony, resulting in a not guilty verdict. After the trial, Detective McNulty explains to Judge Phelan how he suspects the Barksdale crew for a line of related murders. After the judge contacts McNulty's superiors about this revelation, McNulty is taken to task for his indiscretion. Meanwhile, D'Angelo's free to return to work, but discovers he's been demoted to street level deals.
The witness who testified against D'Angelo winds up being a murder case for Detective “Bunk” Moreland. However, McNulty informs Bunk that, since the victim testified against D'Angelo, Avon Barksdale probably ordered this murder. McNulty and Bunk pick up D'Angelo for questioning and convince him to write an “apology” to the victim's family. Just as he's about to start, D'Angelo's attorney arrives and makes him leave.
After early morning “field interviews” conducted by Herc, Carver, and Prez lead to a minor riot and bad publicity for the police, the Deputy Commissioner calls in Daniels. McNulty sends Mahone and Polk to the terrace to get a photo of Avon Barksdale. They come up short, but soft-spoken Freamon comes through with an old photo from Barksdale's boxing days. McNulty and Greggs get surveillance equipment from McNulty's FBI contact.
Bodie manages to slip through security and escape from lockup. Meanwhile, Herc and Carver continue their renegade ways by traveling to Marlboro to find Bodie and beat him into giving up information on the case. Once they get there, Herc has a change of attitude after meeting Bodie's Grandmother. Furious at being robbed of his product during the “re-up,” Avon Barksdale instructs Stinkum, Wee-Bey, and Stringer to double the existing reward for anyone who eliminates Omar and his crew.
When Avon becomes more and more suspicious, he orders Wee-Bey to change phone lines in his apartment. He also promotes Stinkum to manage a new territory and he gets word that one of Omar's crewmembers has been “got”. Stringer warns D'Angelo that a snitch may be in his camp and D'Angelo should tighten up his crew by withholding their pay. While talking with Orlando, D'Angelo learns of Stinkum's promotion.
Brandon's bloodied body is discovered in a lot that's coincidentally located next to Poot and Wallace's house. Wallace reports this to D'Angelo, and also expresses how seeing Brandon's body has started to bother him. D'Angelo tells Wallace to simply get over it, but Wallace is still unsure. Wallace gets further unsettled after Avon rewards D'Angelo and him with extra cash for their parts in getting Brandon taken care of.
Greggs, Carver, Herc, and Sydnor grab the runner holding the re-up stash for the pit. Now that the cops have their stash, a furious Avon questions D'Angelo about a snitch being in the pit. D'Angelo denies the allegation but Stringer tells D'Angelo and his crew to use pay phones a block away now, and not to use the same phone twice. Afterwards, they snatch out the existing pit pay phones. This, of course, disconnects the detectives' wiretap.
McNulty has his sons play the game of “front and follow” with Stringer Bell as the target, and they get Bell's license plate number for their efforts. Greggs and Carver bust a driver picking up a large amount of cash from the towers, only they're forced to return the money on orders from the Deputy Commissioner. Avon finds out about Orlando's inquiries to branch out into “dirty” business, and makes it clear to Orlando that that's not the plan.
Freamon gets Sydnor and Prez started on Barksdale's money trail. They discover the usual ties to dummy companies, but they also find large sums of political contributions. Herc and Carver bust Wee-Bey holding $22,000, but only $15,000 is reported. Lieutenant Daniels discovers the discrepancy and orders them to find the money before the morning roll call. Omar's mission takes him to Proposition Joe where he promptly offers another recently stolen Barksdale stash to Joe in exchange for Barksdale's pager number.
After being clean for three days, Bubbles gets strong advice from former addict Walon and a promise of extra help from Detective Greggs. When Omar's murder attempt on Barksdale fails, Stringer lays down the new law to Barksdale – no phone use, no more money runs, a new pager number and anyone that needs Barksdale talks to Stringer first. They also send word to Omar that a truce will be offered.
While Greggs' life hangs in a delicate balance, the officers deal with the shock in different ways. Herc, Carver, and Sydnor get back on the case after Freamon puts the incident into perspective. After seeing McNulty close to the breaking point, Rawls instructs McNulty not to have any guilt over Greggs' shooting because he's not ultimately responsible. Daniels is ordered by the Deputy Commissioner to raid all the locations to appease the Commissioner's desire for “dope on the table.”
After Barksdale's supply gets confiscated in the bust, Stringer hands down new rules to the crews. Barksdale and Stringer meet with Levy to discuss next steps, which include the elimination of any and all persons that can connect Barksdale to the drugs. Wallace returns to the pit and asks to get put back on. However, Stringer has other plans for Wallace and asks Bodie to step up for the job.
Greggs musters the strength to finger “Little Man” as one of the shooters. Daniels and McNulty go to the feds with damning evidence about some Baltimore politicians tied to Barksdale, thinking they finally have him, but the feds only want the politicians and not Barksdale. D'Angelo can't swing a deal, and cops to a possession charge and 20 years of hard time. Business resumes in the pit with Bodie and Poot carrying the torch, using some of D'Angelo's wisdom and tactics.