Homer buys a satellite system with over 500 channels. He and Bart get addicted to it, and Bart does not study at all for an important upcoming achievement test, even as Lisa is spending all her time preparing. Once the test is done, Principal Skinner announces the results at a school assembly. Not only does Bart fail the test and is demoted to the third grade, but Lisa aces the test and gets promoted to the third grade, where they meet their new teacher, Audrey McConnell. In class, Bart performs well on tests (having memorized the answers from his previous experience in the third grade), while Lisa has a hard time adjusting to the class. Audrey decides to clamp their desks together after Bart answers a trick question he had seen the previous year, as the teacher thinks Lisa needs Bart's help. Later, Bart gets an A on a map test while Lisa only gets an A–. Bart says that the test was easy and recites all of the answers to Lisa, which he had memorized from last year in third grade (because he claims that the answer key never changes). Lisa proclaims that Bart cheated but the teacher did not hear Bart's recitation and tells Lisa to stop being jealous.
Bart and Lisa are made field trip partners as part of the buddy system on a field trip to Capital City. When they are there, they hear that the flag for the state Springfield is an embarrassment (it contains a Confederate flag, despite the state being from the North), and their teacher assigns for homework an assignment to design a new flag. Lisa calls Marge as she designs her flag, which says "To Fraternal Love". On the phone, she complains about and makes fun of Bart, unmindful of the fact that Bart is overhearing the conversation on another phone and getting very angry about her comments. The next day, Bart, Lisa and the other third-graders hand over their flag designs to the Governor. When the Governor sees Lisa's design, she starts to cry and displays the flag which now reads "Learn to Fart". This appalls Lisa, as Bart innocently admonishes her for making the Governor cry.
Later, Bart again teases Lisa and they get in a fight and miss the bus heading back to Springfield. The fight brings them out of the parking lot and into the forest. As a result, the two wind up getting lost. Lisa tells Bart she is hurt by his behavior and Bart sounds somewhat apologetic, though he also adds in the interest of full disclosure that he wants to say he is sorry for using Homer's steamroller a while back to crush Lisa's bike, which he then blamed on Gypsies. Back in Springfield, Principal Skinner informs Homer and Marge that Bart and Lisa are missing. They go to Capital City to find them. Meanwhile, Bart and Lisa have been confronted by a family of hillbillies, who save them by driving them back to Capital City. Marge is ecstatic on seeing her children safe and sound. Principal Skinner, worried about the effects of placing Bart and Lisa in the same class, suggests that they return to the "status quo ante" – both Simpson kids go back to their proper grades.