Heidi invites the designers to a party to congratulate them for making it and tells them that Tim Gunn will be there to deliver their first challenge.
Before the party, the contestants move into their apartments and discover their new roommates before preparing for the evening's festivities. At the party, they learn the details of their challenge - they must design an outfit using only the clothes off their backs. Some are not as excited to redesign their cherished pieces as others, and one designer refuses to incorporate an article she wore to the party into her design.
Later on the runway, the designers are questioned on their use of innovation and one hopeful is ousted from the competition.