The episode opens on a noisy Gotham street, as Cobblepot makes his way off the bus and witnesses cops on the take, a purse snatching, kids shoplifting and prostitutes. He's home.
He sees a news report about a trial for a billionaire who bilked investors in a ponzi scheme. Cut to the man yelling at his attorney on a cell phone; he tries to sneak out the back of the courtroom to avoid reporters, but is accosted by a man in a pig mask, who handcuffs him to a large balloon and lets him float off.
The next morning at the scene, Gordon is confused and Bullock doesn't care. Back at the station, Lt. Bill Cranston is throwing a fit. He meets Gordon, lectures him about how being honest doesn't work in Gotham, and heads out to beat on a suspect.
Later, Gordon and Bullock are disagreeing about how much energy the ponzi schemer deserves when Selina Kyle comes in. She takes him to the scene of the Wayne murder, where she tells him she briefly saw the man's face before he put a mask on. SHe directs him to the sewer grate where she dumped the wallet she stole that night to prove that she was there when the Waynes were killed, and he handcufs her to a pole, which she manages to escape while he's down there.
At Mooney's club, Laszlo is still bruised from his beating in "Selina Kyle." Montoya and Allen come looking for Cobblepot. She tells them that Cobblepot is dead, but that Gordon pulled the trigger, not her. She sells out Falcone as the one who ordered it. Allen isn't convinced, thinking she wants revenge on Falcone.
Elsewhere, Cobblepot is counting change, trying to find out if he has enough money for a food truck, when someone comes up to him, recognizing him and hoping to sell him out to Mooney for a reward. Cobblepot stabs him to death and takes his money, then buys lunch.
At Wayne Manor, Alfred is teaching Bruce to fence, over the kid's objection. Alfred discovers that Bruce has hidden away a file on his parents' murders, looking for clues. Alfred chides him, telling him that he believes Gordon will try his best.
At a restaurant downtown, Cobblepot tries to get a job but is turned away for having the wrong shoes.
At the police department, Gordon and Bullock have another tense exchange about the Wayne murders and Major Crimes.
Outside, Cobblepot sees an employee from the restaurant and asks him what his shoe size is, then laughs when the man tells him.
In a dark alley, Lt. Cranston is beating on a drug dealer who didn't pay him enough protection. As he moves away, he's accosted by a man in a mask and fedora, who tries to handcuff him. Cranston gets the jump on him, knocking him to the ground, and finds a document on the man that confuses him. Before he can figure it out, though, the man cuffs a balloon to his ankle and watches him float away.
At Wayne Manor, Bruce is reading the newspaper and Alfred is asking him why he isn't eating. Bruce tells him he's just not hungry -- but he is fascinated by the balloon man headlines.
Gordon leaves for work the next morning, saying good-bye to Barbara along the way; she's worried since the Balloon Man killed a cop. Gordon's upset that nobody cared when the first victim was killed. He's afraid that if people lose faith in the system, you'll get vigilantes. Barbara counters that he's a hero, having caught the Wayne killer.
In Essen's office, she's upset that the media is getting wind of the investigation. Gordon says they're looking for Carl Smikers, who stole four large, expensive balloons from his boss. Bullock is now sure he can find Smikers, and takes Gordon out on the streets to look for him, shaking people down, talking to hookers, etc.
Don Maroni comes into the restaurant where Cobblepot is now washing dishes.
Bullock brings Gordon to an apartment where they've tracked Smikers. A woman answers the door and tells him to run, then attacks Bullock while Gordon gets Smikers in cuffs. Gordon has to hold her at gunpoint to keep her from dropping a TV on Bullock's head, but they arrest the pair.
At Fish's nightclub, Laszlo is worried about her well-being if Falcone finds out that she sent the police after him. She tells him not to worry, then calls someone else over and wants a new boytoy; she arranges for the girlfriend of Falcone to have an accident, and to have Laszlo killed.
Montoya comes to see Barbara, letting herself in with the key while Barbara is in the shower; they argue, Montoya tells her that Gordon killed Cobblepot, and that she deserves better than Gordon. Barbara kicks her out.
Back in the interrogation room, Smikers says that he stole the balloons and sold them, but didn't kill anyone. He explains the chemistry behind weather balloons, and that the bodies will eventually fall. While they're finding one of the bodies that fell out of the sky, they find out that a third victim -- a pedophile priest -- has been killed and there is only one outstanding balloon. A CSI comes to see them, bringing a bag full of the contents of Cranston's pockets, which includes something with Gordon's name on it. Gordon says he knows who the Balloon Man is.
At the Italian restaurant, Maroni is conspiring against Falcone and Cobblepot overhears it. He smooth-talks Falcone into thinking that he is both Italian and harmless. Falcone gives him a huge tip. When the TV comes up with news of the dead priest, Maroni jokes that you can't do this in public.
Davis Lamond, from child protective services, is apparently the killer; he's the man who brought Selina in earlier. they found a form on Cranston's body that Gordon gave Lamond the day before.
Gordon and Bullock head to the old juvenile hall, which is ready for demolition, where the believe he might be. They get there and see a balloon, but when they go to investigate, Lamond gets the drop on Bullock, holding him at gunpoint. He tries to get Gordon to let him go because he knows that the city is too broken to help the children he works to save.
When Gordon won't go with it, Lamond tries to shoot him and Bullock attaches Lamond to the balloon. Gordon grabs the man's waist and forces Bullock to shoot the balloon down rather than let Gordon float away with him too.
The next evening, Falcone visits Fish Mooney's club to check in with her. He tells her that he plans to make whoever mugged his girlfriend pay, and speculates whether it could be Maroni.
Lamond tells Gordon that there will be more like him, and Gordon says not if he does his job. He asks who the man's last target was.
At Wayne Manor, Bruce says that the Balloon Man killed people, which made him a criminal, too.
That night, Gordon goes home and finds Babara there, worried about him. After ascertaining that he's okay, she again asks him what's wrong, telling him that he can tell her anything. He tells her that the city is sick in a way he hadn't realized and that the Balloon Man's last target didn't matter -- anyone in town is guilty.
She tells him that he isn't guilty, and that she'll fix him a drink...but then there's a knock at the door, and it's Cobblepot.