The designers must make a "day to evening" ensemble for Banana Republic. To do this they are split into teams of two. Working together proves difficult for some of the teams as the designers vie over creative control of the garment. The day of the runway show is filled with surprise when the teams are asked to design window displays for their outfits. Banana Republic customers vote to determine the winning design and later on the runway, one team is sent home in a dramatic double elimination.

The designers are invited to the showroom of Fashion Designer Michael Kors. He talks about the importance of inspiration, hands them digital cameras and tells them to hit the streets of Manhattan to take pictures of the things that inspire them. Later, they must choose 1 of their pictures as the inspiration for a garment. In the workroom, some designers seem more inspired than others who struggle to realize their vision. On the runway, the contestants are surprised to discover Season 1's Jay McCarroll as the Guest Judge. Jay helps crown the winner and one designer is sent home.