On a cold December evening, Matthew enters the kitchen and realizes too late that Anne and her friends are already there conducting a rehearsal of “The Fairy Queen” in preparation for the Christmas concert. Shy of all the little girls, he stays silently in the corner until they leave. While observing the group, Matthew notices that Anne is dressed differently from her friends. He becomes convinced that she needs more fashionable clothing and goes into the town of Carmody to find a bright dress with puffed sleeves. Shopping is not an easy task for such a shy man, but Matthew summons his courage and goes to Samuel Lawson’s store, which he thinks will not have a female clerk at the desk. Much to Matthew’s dismay, he finds that Samuel Lawson has hired a female clerk, Miss Lucilla Harris.
Matthew is too scared to ask Miss Harris for fashion advice, and asks for twenty pounds of brown sugar and a garden rake before making his escape. Matthew eventually asks Mrs. Rachel for help, and she picks out a rich brown fabric and uses a fashionable pattern to make Anne’s dress. Mrs. Rachel has often wondered why Marilla dresses Anne so plainly and is happy to have a part in updating Anne’s wardrobe. On Christmas Day, Matthew unveils the dress, complete with puffed sleeves. Diana comes over with a present from Aunt Josephine for Anne: delicate slippers. Anne is delighted by her beautiful new garments.
Anne’s Christmas concert is the first one Matthew and Marilla have been to in twenty years. Anne, wearing her new dress and shoes, is the star of the show. Both Cuthberts are swollen with pride. Matthew immediately tells Anne how proud he is of her, but Marilla decides not to compliment Anne.
After the excitement of the Christmas concert, the Avonlea students return to their normal, humdrum patterns. Anne, now almost thirteen, vows to improve herself by imitating Mrs. Allan, refraining from saying uncharitable things and trying to do good.
For school, the students are assigned to write a piece of fiction and a composition about a walk in the winter. These assignments displease Marilla because they rely on imagination rather than memorization. They elate Anne, however, and she completes her original story early. Diana moans that she does not have enough imagination to do the assignment. To help Diana cultivate her imagination and to practice her own writing, Anne proposes that the two girls start a story club. Two of their friends, Jane Andrews and Ruby Gillis, eventually join, and the girls spend their time inventing romantic, melodramatic storylines.
One evening in late April, Marilla walks home feeling uplifted and lighthearted, though she does not realize that the sights of spring are the cause of her joy. She happily anticipates the warm fire and tea that Anne should have prepared for her at home. When she reaches Green Gables, Marilla finds the table bare and Anne nowhere to be found. She complains to Matthew that Anne has disobeyed her order to stay at home and prepare the meal. Her anger turns to concern when suppertime comes and there is still no sign of Anne. Marilla goes upstairs to get a candle from Anne’s room and finds her lying facedown on her bed, moaning that she is too ugly to be seen. It turns out that Anne has dyed her hair with disastrous results. She bought hair dye from a traveling peddler who claimed the dye would turn her hair raven black. The dye turned her hair green, and the only solution is for Marilla to crop it to an unfashionably short length. At first Anne weeps at the sight of herself in the mirror, but she then decides to look at her unattractive reflection to remind herself of the folly of vanity.