Steve Franks continued to serve as showrunner for the third season. "I Know, You Know," performed by The Friendly Indians, continued to serve as the theme song for the series, though the Christmas-themed version used for the previous season's "Gus's Dad May Have Killed an Old Guy" was used again for "Christmas Joy."
Andy Berman and Steve Franks returned to write three episodes each, while Josh Bycel, Anupam Nigam, Saladin K. Patterson, and James Roday wrote two. Tim Meltreger returned to pen one episode. New writers for the season included Kell Cahoon, who wrote two episodes, and Victoria Walker, who wrote one.
Gus's boss (Todd Stashwick) forces him to choose between his pharmaceutical sales job and the Psych agency, so Shawn decides to save both jobs by investigating the home of the company's V.P. (Christopher McDonald), which appears to be haunted. In the meantime, Shawn must deal with the return of his mother Madeleine (Cybill Shepherd), a psychologist who is in town to evaluate some of Santa Barbara's finest, including Lassiter.
At first, no one believes Shawn when he claims that a murder took place at his and Gus's high school reunion, mainly because there's no body. As he puts the pieces together, Shawn must also deal with his old flame Abigail (Rachael Leigh Cook), whom he stood up back in high school, and shows a vulnerable side of himself never seen before. Henry continues to try and reconnect with his ex-wife Madeleine (Cybill Shepherd), and in the process shows up at the reunion.
Shawn suspects sabotage when he sees a daredevil (Jeff Fahey) almost die during one of his stunts. As he and Gus get into his inner circle, however, they come to realize that there is sabotage involved, but it has nothing to do with someone holding a grudge. Also, Vick tasks O'Hara with a near-impossible task: finding Lassiter a girlfriend.
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"The Greatest Adventure in the History of Basic Cable"
What starts out as a treasure hunt turns into a life-or-death situation when Shawn's uncle Jack (Steven Weber) arrives in town with a map apparently leading to an ancient Spanish treasure. Gus and Henry get involved, as well as the detectives, when all of Jack's ex-partners show up looking for the treasure, and they all have a bone to pick with him.
In 1978, Henry achieved his career bust by arresting a man who was plotting to bomb the SBPD. When the culprit's conviction gets overturned, Henry must stay out of sight while Shawn attempts to put the would-be bomber behind bars again, only to realize that the case goes way beyond one man.
A safety inspector's death on an offshore oil rig appears to be accidental, but Vick encounters difficulty with the Coast Guard – of which her sister (Jane Lynch) is a Commander – over jurisdiction. As Shawn finds himself as an unwitting pawn in their sibling rivalry, he finds out why the inspector was killed, and stumbles upon a missing person's case in the process.
Juliet goes undercover as a roller derby skater after Shawn deduces that a string of robberies have been committed by one of the teams. The case takes a turn when one of the robbers (Mickie James) botches a drop, and Shawn deduces that the robberies were a cover for something bigger. In the meantime, Gus is studying to get re-certified for his pharmaceutical sales job.
Gus ends up in a hostage situation after he walks into a bank. As Shawn attempts to negotiate with the gunman (Alan Ruck), he realizes that the situation was not meant to be a bank robbery, and not only does he butt heads with the chief negotiator (Gary Cole), he discovers something about Juliet that he would rather just forget.
Gus's sister Joy (Faune A. Chambers) comes to town for the holidays, and she seems very intent on continuing a past relationship with Shawn, who doesn't want Gus to know about it. When a little girl (Cassandra Sawtell) comes into Psych and asks Shawn and Gus to get a local Santa out of jail, they begin to think they've been conned, until a dead body turns up. Meanwhile, the Gusters (including Phylicia Rashad and Keith David) discover that they have been keeping various secrets from each other. Psych's second annual Christmas special.
Shawn is none too pleased when Gus drags him to a funeral for local celebrity 'Shabby the Sea Lion' who was found dead after being released into the wild. Shawn sets out to prove it was murder and stumbles onto a bigger conspiracy.
Lassiter has never liked the presence of Shawn and Gus since they became consultants in solving cases, but he finds himself in need of their help when he is the main suspect in a murder committed in his own precinct. Shawn is already certain that Lassiter is not guilty, and deduces that the killing was an inside job.
An arson investigator (Milena Govich) gets no help when she suspects that a recent fire was the result of arson and not an accident, but all it takes is Shawn's intervention to reveal that an arsonist/murderer is on the loose, so he and Gus infiltrate the firehouse that put out the fire to find out how deep the case really goes.
Shawn and Gus go undercover at a professional football training camp - whose coach (Mykelti Williamson) has a history with Shawn - when the foot of the team's missing kicker is discovered. At first it appears that he was killed by Russians to whom he owed a lot of money, but as Shawn keeps digging, he learns that the case is not at all what it seems.
A pathological liar Ryan (Jonathan Silverman) with a history of lying to the police is suspected of killing his super, and also claims to know about an assassination plot. Shawn is able to figure out that this liar is actually telling the truth, which leads him and Gus to an amnesiac, Tom Lieber (Jared Hillman), and the truth behind the case.
Shawn and Gus are hired by a childhood friend named Jason Cunningham (MacKenzie Astin) to find a missing camp counselor who disappeared near their old sleep-away campgrounds, Camp Tikihama. Suddenly, Gus and Shawn find themselves entangled in a web of murder mystery when they are all stalked by a psychotic killer. Shawn then discovers they have been invited there by Jason as "test subjects" because he is reopening the camp as a horror camp, a place where people pay to have themselves chased by a "killer." After Jason reveals the truth behind the incident, everyone present finds themselves with the roads closed, and trapped. This time, at the mercy of a real killer. When people begin winding up dead, Shawn, Gus, and O'Hara try to find out who the killer is before it is too late. Meanwhile, Lassiter has dinner with his estranged wife Victoria (Justine Bateman), but it's a meeting he would rather forget.
Shawn decides to ask his high school crush Abigail (Rachael Leigh Cook) out on a real date, but he soon finds himself the target of the mysterious Mr. Yang (Ally Sheedy), a notorious serial killer who has been in exile since 1995. Shawn immediately suspects another consultant (Jimmi Simpson), but soon realizes that Yang will not be an easy catch. He must race across Santa Barbara trying to catch a criminal mastermind that always seems two steps ahead. The feud becomes personal when Madeleine Spencer (Cybill Shepherd) is kidnapped, and Shawn must push himself to his limits to solve this case.
