It's Lydia's birthday, so the spirit of Peter helps her throw the big bash he wants her to. It doesn't happen so Stiles invites a bunch of ravers over so she doesn't feel bad. She spikes the punch and everyone starts hallucinating and acting crazy.
Lydia then knocks Derek out with purple dust and drags him to the abandoned house. She puts Peter's claw on Derek's flesh and the former alpha rises from the dead.
Matt continues to date/stalk Allison, and she freaks out when she sees pictures of herself on his camera. After being afraid of the water at the pool, and then obviously standing with the kanima, it is revealed that Matt is in fact the master.
Meanwhile, the Argents struggle with the fact that Victoria was bitten. They all decide that she should kill herself, and Chris helps with the process.