Leo Johnson survives his shooting but is brain-damaged. Catherine Martell disappears, presumed to have perished in the mill fire. Leland Palmer, whose hair has turned white overnight, is rejuvenated by Renault’s murder and returns to work.
Phillip Gerard is the host for Mike, a demonic “inhabiting spirit” who used to retain the services of Bob, a lesser demonic entity, to help him kill humans. Mike reveals that Bob has been possessing someone in town for decades, but he does not know whom. Donna takes on Laura’s old route for the Meals on Wheels program in the hopes of finding more clues to Laura’s murder. She befriends a young man named Harold Smith who is in possession of a second diary that Laura kept. She and Maddy attempt to steal it from him, but Harold catches them in the act, loses all faith in humanity, and hangs himself in his orchid greenhouse. The officers take possession of Laura’s secret diary, and learn that Bob, a friend of her father’s, raped her repeatedly as a child and that she began using drugs to cope. Cooper believes that the killer is Ben Horne, but Leland is revealed to be Bob when he brutally kills Maddy.
Cooper doubts Horne’s guilt, so he gathers all of his suspects in the belief that he will receive a sign to help him identify the killer. The Giant appears and confirms that Leland is Bob’s host and Laura’s and Maddy’s killer. Bob assumes total control over Leland’s body and confesses to a series of murders, before forcing Leland to commit suicide. Leland, as he dies, free of Bob’s influence, tells Cooper that Bob has possessed him ever since molesting him as a child. He begs for forgiveness, sees a vision of Laura welcoming him into the afterlife, and dies in Cooper’s arms. The lawmen question whether Leland was truly possessed or mentally ill, and considers the possibility that Bob might still stalk the community of Twin Peaks in search of a new host.
Cooper is set to leave Twin Peaks when he is framed for drug trafficking by the criminal Jean Renault and is suspended from the FBI. Renault holds Cooper responsible for the death of his brothers, Jacques and Bernard. Jean Renault is killed in a shootout with police, and Cooper is cleared of all charges.
Windom Earle, Cooper’s former mentor and FBI partner, comes to Twin Peaks seeking revenge because Cooper had an affair with Earle’s wife, Caroline, while she had been under his protection as a witness to a federal crime. Earle went mad, killed Caroline, and stabbed Cooper. He was committed to a mental institution but escaped, hiding out in the woods near Twin Peaks. He plays a twisted game of chess with Cooper in which someone dies each time he captures an opponent’s piece.
Cooper tries to discover the origin and whereabouts of Bob, and learns more about the mysteries of the dark woods surrounding Twin Peaks. He learns of the existence of the White Lodge and the Black Lodge, two extra-dimensional realms whose gateways reside somewhere in the woods. Cooper learns that Bob, the Giant, and the Man From Another Place all come from one of the two lodges. Meanwhile, Bob restlessly seeks another host. Josie Packard dies mysteriously during Truman and Cooper’s attempt to apprehend her for shooting Cooper. At the moment of her death, Bob briefly appears to Cooper, drawn by her fear.
Cooper falls in love with a new girl in town, Annie Blackburn. When Annie wins the Miss Twin Peaks contest, Earle kidnaps her and takes her to the Black Lodge entrance in Glastonbury Grove. Cooper realizes that Earle’s real reason for being in Twin Peaks is to gain entrance into the Black Lodge and harness its power for himself, and that his chess game has been an elaborate decoy. With clues from Deputy Andy and the Log Lady, Cooper discovers the entrance to the Lodge, which turns out to be the red-curtained room from his dream. He is greeted by the Man From Another Place, the Giant, and the spirit of Laura Palmer, who each give Cooper coded prophecies about his future and demonstrate the properties of the Black Lodge, which defies the laws of time and space. Searching for Annie and Earle, Cooper encounters doppelgängers of various dead people, including Maddy Ferguson and Leland Palmer, who taunt him with strange denials, warnings, and falsehoods. The doppelgängers eventually lead Cooper to Earle, who demands that Cooper give up his soul in exchange for Annie’s life. Cooper agrees and Earle stabs him. Seconds later, Killer Bob appears and reverses time in the Lodge. Bob tells Cooper that Earle cannot ask for his soul and then kills Earle and takes his soul. Bob then turns on Cooper, who experiences fear for the first time in the Lodge. Cooper flees, pursued by Bob and a doppelgänger of himself.