It looks as if Lisa's days as the class brain are numbered when the new student proves to be smarter, younger, and plays the sax better than her. Meanwhile, Homer strikes white gold in the form of an over-turned Sugar truck.
Lisa feels as if she's going to have to work a little bit more now that a new student, Allison Taylor (voiced by Winona Ryder), has arrived at Springfield Elementary. Allison is as smart as or smarter than Lisa, younger (having skipped a grade), and like Lisa, a young master of the saxophone.
Regardless, Lisa tries to be her friend, though she battles her envy and jealousy. It comes to a climax during Springfield Elementary's annual "Diorama-rama", a competition in which the students build dioramas. Allison chose and constructed her project early: a scene from The Tell-Tale Heart, by Edgar Allan Poe. Lisa goes to great efforts to produce a better diorama, a scene from Oliver Twist, but it is immediately destroyed by an electric fan that Lisa utilizes, along with fake snow, to simulate a "bitter snowstorm". She is distraught thinking she may not beat Allison after this. Bart decides to intervene and help Lisa sabotage Allison's entry so she can win. On the day of the diorama contest, he distracts the other students with his own demonstrations to give Lisa time to switch Allison's entry with one containing a cow's heart. After Principal Skinner chases Bart away, he discovers the cow's heart in the diorama and proceeds to humiliate Allison in front of the entire school. Soon Lisa's conscience intervenes and she produces the real diorama.
Lisa and Allison both lose to Ralph Wiggum, whose diorama consisted of a box of Star Wars action figures, objects of sentimental value to Principal Skinner. In the end, Lisa and Allison put aside their differences and become friends as they walk away, picking up Ralph along the way to hang out with them after he accidentally trips and breaks his action figures (saying two of his more well known lines, "I bent my Wookiee," and "My cat's breath smells like cat food.").
A secondary story arc follows Homer after he steals hundreds of pounds of sugar he finds at the scene of a truck accident. Homer tries several hare-brained schemes to make money from the sugar. Eventually, the sugar attracts bees from the local apiary and the owners offer Homer money to buy the bees back, but at the last moment it starts raining, the sugar melts, and the bees leave on their own.
A third story arc involves Bart pranking Milhouse by putting his picture on America's Most Wanted and then repeatedly updating the authorities as to his whereabouts.
According to the DVD audio commentary for the episode, the Northridge earthquake occurred during the production of this episode. It also notes that Conan O'Brien, who by this time had left the show, suggested having an episode about a rival for Lisa (though it was only the basic concept and not the story line that came from O'Brien).