Years have passed, but little has changed. The Lambs are still bustlers, the Pickles do little. Rose's antipathy towards Dolly has grown - particularly when Dolly tells her she has to leave school and get a job. Rose's brother, cheeky little Ted (Dolly's favourite) is now a jockey and a hit with the girls. And Quick Lamb is still looking after his brain-damaged brother Fish, and continuing to feel a sense of guilt over the prawning accident in which Fish nearly drowned. Soon, the pressure of those feelings leads him to snap and he walks out of No.1 Cloud Street.
In response to Quick's desertion, to keep herself busy, Oriel declares war on a competing local cornershop, unaware that its owner, Gerry Clay, is having an affair with Dolly Pickles. Oriel wins the retail war but is shaken into realising the cost of the war has led Gerry to walk out on his wife, who is now left to bring up their kids on her own and who therefore hates Oriel Lamb. Mrs Clay also tells Sam Pickles about Dolly's affair. Sam contemplates ending it all, but Rose stops him. Instead, in typical Pickles fashion, he does nothing, and things sort themselves out when Gerry Clay leaves. Then Ted elopes to Adelaide with the daughter of the horse trainer he works for, and suddenly Dolly's favourite son is gone. Meanwhile, Rose, keen for an escape from the stifling nothingness of No.1 Cloud Street, begins a relationship with an urbane, young would-be-author, Toby Raven, who represents all the things she doesn't like about cloudstreet. She soon makes the disturbing discovery that he is a plagiarist. Toby does a decent job of explaining to her that it wasn't really plagiarism - but we can see Rose's trust in him has been damaged.
Before things can settle down, Sam arrives home with a black eye and a broken tooth, and Dolly knows he once again owes a lot of money from betting at the track. Lester, keen to avoid any debt collectors arriving on the doorstep of a house he shares, quickly hides Sam in a remote shack and sets about skimming the money Sam owes from the shop's profits. Caught by Dolly, she seduces him, partly in thanks, partly to buy his silence.
Quick, meanwhile, is roo-shooting in the vast wheat fields of Western Australia. When he's left injured by a charging kangaroo one night, his connection with Fish leads to another moment of magic realism - Fish, on both the backyard porch but also ""in"" the wheat field, offers to rescue the prone Quick, but he is unable to, as Quick had been unable to help the young, drowning Fish.
Lester brings out the money Sam owes to the shack where Sam is hiding, but Lester is extremely concerned that Oriel will know he's stolen from the shop, and that Sam might twig he's just had a tryst with Dolly. But Sam has just tossed a coin and come up with one hundred and thirty three ""heads"" in a row. He is on fire. His luck is in. They can take the money Lester has brought out to the two-up school and triple it and everything'll be sweet. In the maelstrom of life, it's an ""up"" moment, a winning moment they can all feel.