Molly, the youngest orphan, is first heard calling for her mother, who she had a nightmare about, only angering the rest of the orphans, resulting in a fight. Annie stops them and warns them that if Miss Hannigan wakes up, she'll get mad. Molly is then comforted by Annie, who later re-reads a note from her parents (with the rest of the annoyed and then amused orphans joining in) and then puts them back to bed. As Annie is about to search for her parents, worrying that they haven't found her yet, Pepper wakes up, and Annie tells her to watch out for Molly. Tessie warns her about Miss Hannigan catching her, but Annie denies her doing so.
However, Miss Hannigan does catch Annie and brings her back to wake the other orphans. She tells the orphans to clean up the mess until it "shines like the top of the Chrysler Building" "as a little welcome-home party." They give her the wanted catchphrase and scrub the floors. Moments later, they strip the beds and put Molly in the laundry basket. They then bury her with the bed sheets. As Miss Hannigan enters and tells them "Good morning," all respond back together except Molly, who says it just immediately afterwards, buried. Miss Hannigan tells her her days are numbered. They then greet Mr. Bundles and accept a clean sheet each. They secretly help Annie escape by hiding her in the laundry basket. They ask Miss Hannigan for their breakfast, but she refuses, telling her they can only have it later... after they have done a good job on this cleaning up. She assembles them for roll call, and any orphan just looked at answers, "I love you, Miss Hannigan." It is then that Miss Hannigan finds out that Annie is absent. Although Miss Hannigan is dismayed, the orphans are happy that she is gone, hoping that she has found her folks. They then celebrate with a pillow fight.
Much later, when the police have brought Annie back to Miss Hannigan, the latter sends girls back to their room. Only when Miss Hannigan leaves Annie in the bathroom to cook up her punishment, they come out to tell her they saw a mouse, and they argue over where it is, but she doesn't care. One orphan accuses Duffy of cheating (at something unknown), resulting in an argument. The orphans are then cheering when Annie gets to go to the mansion of Oliver Warbucks for a week of Christmas vacation.
Next, all the orphans are listening to Bert Healy, and of course, Annie, on the radio, but out of all orphans, Pepper doesn't care if Annie is on the radio. They hear that Mr. Warbucks is offering $50,000 dollars to the couple who can prove they are Annie's parents. However, all of them sing the song "You're Never Fully Dressed Without a Smile." Upon telling Miss Hannigan that Annie was on the radio and about the reward money, she sends them to bed without supper for "being bad."
On Christmas morning, Lily St. Regis is left with the orphans while Miss Hannigan and her brother leave to get Annie, pretending to be her parents, and plays poker with them. When accidentally, she reveals that Annie is at Mr. Warbucks' house, the orphans blackmail her by stealing her purse and revealing her fake ID, she is forced to spill the beans and reveal what Rooster and Miss Hannigan are doing. They then arrive at Mr. Warbucks' house and give Miss Hannigan the wanted chant, but this time, sarcastically. As soon as Miss Hannigan is taken away, and Annie says she is gone forever, the other orphans cheer. Then after Annie realizes she is an orphan, and after the president decides the orphans will be adopted by other families, they cheer again, and then a third time when Grace Farrell tells them Annie picked out presents for them.