In her first week at Griffin Secondary, Gwen realises there's something fishy about Ms. Blatt, the Socials teacher. Tasha suspects that Ms. Blatt is a witch, working a spell to steal youth and beauty from her students. Intuiting that Gwen has a sensitivity to magic, Tasha tries to enlist her to defeat the ever more youthful teacher – but meets with resistance and denial from Gwen. Meanwhile, Gwen meets Josh – and has her first encounter with Merlin.

While a demon terrorizes Karen Jones' hospital ward by making the patients' nightmares come to life, Karen makes a sudden and remarkable recovery from psychosis. But Gwen's delight at regaining her mother is dashed when Karen refuses to leave the hospital – for reasons Karen will only confess when she learns to her dismay that Gwen has met Merlin, and has started on the path to discovering her magical powers. Magic is just one of things Gwen's mother has hidden from her: Gwen learns too late that Karen has enlisted Tasha to help her reclaim the demon of the psych ward, and return her to madness.

Gwen has her first encounter with Morgana when Merlin's nemesis kidnaps Tasha in an effort to force Gwen to help her secure the ultimate prize: Merlin's Stone, an ancient crystal that holds the key to immortality. The rift between Gwen and Josh begins to mend as the two unite to save Tasha – and defeat Morgana. Merlin endows Gwen with a special gift: a talisman that belonged to Guinevere, and which will help Gwen to focus her power.

Gwen learns more about the nature of evil when she thinks her temper is responsible for unleashing black magic that has caused Katie's caseworker to remove her from Harve and Louise's care. While Harve and Louise go through channels to get Katie back, Gwen and Tasha try to "undo" the spell, only making things worse for Katie – and putting Gwen at risk for being removed, too.

As the high school prepares a production of MacBeth, Gwen runs afoul of Wind, Reine and Fire when queen bee Reine realizes Gwen is her chief competition for Josh's affections. Meanwhile, Katie follows Gwen to the forest glade and discovers the secret of Gwen's magic – only to become the object of derision when she tries to impress the disbelieving kids at school with the knowledge. Patrick O'Leary takes up a teaching position at Griffin High.

While painting graffiti, Spencer Huang inadvertently becomes possessed by a Dybbuk, a Jewish demon that forces the possessee to commit mischief and evil deeds. But this Dybbuk has a purpose: to find a suitable host for his girlfriend, an even meaner Dybbuk. When he finds the perfect candidate in Reine, Gwen's new worst enemy learns all about Gwen's secret.

As Gwen and Josh look forward to their first date, Patrick O'Leary does his best to break them up – on orders from Morgana, for whom, we learn, O'Leary is working. Ultimately, though, O'Leary's meddling only brings Gwen and Josh closer together, leading O'Leary to stand up to Morgana: from now on they'll do things his way as he gradually wins Gwen's trust, in their ongoing pursuit of Merlin's Stone.

A geology experiment goes awry for Spencer when he is magically sucked into an ancient rock painting. Problem is, the rock was also home to Warwe and Mineer, a star-crossed Aborigine couple, one half of whom has been projected out of the rock into present day. Gwen learns quickly that if she plans on saving Spencer, she must ensure a safe reunion of Warwe and Mineer.

Just when Gwen and Josh are becoming a steady item, Tasha asks Gwen for a little magical assistance getting the attention of Michael Medina, a new boy at Griffin High. Gwen encounters a strange new force: the world of Faerie. She also makes the disturbing discovery that she herself is attracted to Michael, endangering her friendship with Tasha – and forcing her to face the legacy of Guinevere's fickle nature.

Merlin's tree is on the chopping block when Gwen and Tasha discover that a construction company has big plans for the forest glade. This spells certain doom for Fern, a faerie being known as a Dryad, and an inhabitant of Merlin's tree. Realizing that the head of construction also happens to be Reine's father, Gwen, Tasha and Josh conspire to halt the construction.

Michael makes the basketball team thanks to his jock father's generous charity to Griffin's sport's department. Problem is, Michael wants nothing to do with sports and wants his father to butt out of his life. Gwen's growing attraction leads to a discovery that there is something magical about Michael: a force from another world, who will do anything to protect him.

Michael's protector, a boorish faerie known as Gadowain, wreaks havoc in the arcade as Gwen, Tasha, Josh and Spencer try to hatch a plan to rid Michael of his burden. A riddle posed by Gadowain plagues Spencer, but the answer eventually comes clear: Iron is the faerie's weakness. Gadowain warns Gwen that there are stronger forces at work and that Michael needs his protection. They strike a truce: Gwen allows Gadowain to stay with Michael, but he must lay low, keeping Michael in the dark. But Gwen is forced to face a more troubling question: who is Michael, and what is his connection to faerie?

A woman claiming to be Karen's long-lost sister shows up unexpectedly on Gwen's doorstep. "Amanda" Jones and Gwen quickly hit it off, but Harve and Louise harbour growing suspicions about their mysterious guest. Also a practitioner of magic, Amanda offers Gwen a free-spirited and fun-loving alternative to Merlin's strict regimen. Faced with an opportunity to move away with Amanda, Gwen has to make a near impossible decision. Meanwhile, Josh's increasing suspicions about Gwen and Michael's relationship lead him to set up a double-date: he and Gwen, along with Tasha and Michael. But his jealousy compels Gwen to reach an inevitable conclusion: she has to do the right thing and break up with Josh. Meanwhile, Tasha – who has learned the truth about Michael's lack of feelings for her – blames Gwen, and breaks off all contact.