Kate is frustrated with her lot in life as she hasn't got a boyfriend, despite having so much to offer. When newly-graduated Princeton moves in, he and Kate have an instant attraction, though both are too shy at this point.
Kate works as a teacher's assistant, but dreams of one day opening a school for monsters so that they don't have to feel like outcasts. Mrs. Thistletwat, the kindergarten teacher, offers Kate an opportunity to substitute the next day, which Kate gleefully accepts. Kate and Princeton get closer, with Princeton sending her a birthday card, making her a mixtape and finally taking her out on a date. While dating, they get drunk and go home to have wild sex. Afterwards, Princeton gives her his lucky penny as a token of his love for her. The next day. Kate sleeps through the whole morning and misses the class she was supposed to teach. Angry and hungover, Kate tells Mrs. Thistletwat that she quits.
Kate and Princeton go to a wedding together. While there, Kate catches the bride's bouquet, which alarms Princeton, as he assumed that their relationship was just a casual one. Princeton then tells Kate that he'd rather stay friends from now on. Kate refuses to speak to him after this. After finding out that Princeton was dating Lucy the Slut, Kate went up to the Empire State building and drops Princeton's lucky penny, which just so happens to land in Lucy's skull, rendering her comatose.
Princeton, realising how much he'd hurt Kate, decides to help her open up her school for monsters by getting the other residents on Avenue Q to chip in. They all readily agree and Kate's school is established. Princeton and Kate reconcile and slowly rebuild their relationship.
Lucy is a showgirl and the antagonist of the story. When Princeton and Kate were dating, she gave Princeton some very suggestive hints. After Kate and Princeton split, Lucy swoops in and manages to sleep with Princeton. She also tries to sabotague any chance Kate might have of getting back with Princeton. Lucy gets her comeuppance when Kate drops a penny from the Empire State building, hitting her in the head and nearly killing her. In the end, Lucy survives and becomes a born-again Christian.