Season 8 begins with Lister and Rimmer (who is now alive) in their new sleeping quarters on Red Dwarf. Lister tries in vain to get Rimmer to talk to him and we then flash back to three days earlier: From where we finished the previous season, Cat pilots Starbug into the Dwarf's landing bay which is now huge. As they fly through an air vent the ship begins to shrink back to it's proper size. When they finally land (or crash) Starbug we learn that the nanobots have resurrected the crew along with the ship. Lister thinks this is a godsend but Captain Hollister promptly arrests him and the others for stealing and then destroying a Starbug. While confined to his old quarters Lister is met by Rimmer and, after being disgusted that Rimmer has returned to his original smeghead self, pleads with him to help him and the others escape before they are sentenced. The Captain and the other officers are trying to figure out why they are now in deep space.

Get Rimmer Officerhood, Power and Eminence (GROPE for short) is in full swing as he sucks up to Captain Hollister using the confidential files Lister gave him. However Rimmer will not help Lister and the others escape until he is promoted. Lister secretly takes some of the Luck Virus and escapes from the holding cell and heads to find his compadres. Kryten is classified as a woman as he has no apparent genitalia and is put in with Kochanski. This won't last long as the engineers are planning to restore him to his factory settings. One thing he cannot do is say no to a superior officer and this event ultimately happens. Lister finds Kochanski and the Cat (who is being held in the medical bay while they try to figure out exactly what he is) and the three find the no-personality Kryten. To avoid detection they dress up as the Dibbley family using mop heads as wigs and big, ugly false teeth.

Rimmer and Lister are trying to adjust to life in prison given that they are in the worst area you could possibly get. They go on about trying to survive the next two years there as we fade into ... Two Days Earlier: From where we left off, Lister, Kochanski, Cat and Kryten are dressed up as the Dibbley family and making their escape. What they don't know is that they are hooked up to a VR suite and all of this is a simulation. They climb aboard a Blue Midget, which is very different to what we have seen before. It is now a large vehicle which stands upright on two massive legs. After a fabulous display from the Cat where he tap dances with the Midget, they make their escape. Rimmer gets to the VR suite and types a command to erase any references to the deal he and Lister made. Suddenly the scene aboard the Blue Midget cuts to erase several words and it looks like a bad editing job. After several moments of jumping around they realise they are in VR.

Lister mistakenly signs the gang up for the 'Canaries', prisoners that go into dangerous situations first to ensure it is safe for the important people. Their first mission is to investigate a derelict spaceship, and our crew come across a computer called 'Cassandra' who can accurately predict the future. When she predicts that Rimmer will die when the ship disintegrates, he goes to great lengths to prevent it from happening.

Kryten complains to Lister about being placed in the women's wing of the prison and makes the fatal mistake of revealing he showers with them too. The male inmates want him to sneak in a camera and film them but he refuses. Kill Crazy and some other inmates reprogram him, turning him into a ruthless entrepreneur and he creates "Krytie TV", a pay-per-view service offering "Women's Shower Night" and other events. Lister tries to get Kryten to stop, as he and Rimmer are in the middle of an appeal against their sentences, but Kryten plays a trick on them, getting them to mistakenly trash Ackerman's quarters live on Krytie TV.

Lister and Rimmer are constantly getting into trouble. After playing a practical joke on Ackerman they are forced to play in an inmates vs guards basketball game and win by putting erectile solution in the guards drinks. Punishment for that is to peel potatoes for the next three weeks and to make that go faster they steal a programmable virus to peel them but it ends up eating their clothes and hair. Punishment for that is to spend three weeks in the Hole where they meet Birdman, who has been in there for nine years and has only one friend, a sparrow named Pete. Meanwhile Kryten, Cat and Kochanski are sent aboard a derelict ship where they find a device which can change the time stream surrounding an object or person to make it move extremely slow or fast and decide to use it to make their prison sentences go by in a flash. On Red Dwarf they freeze the crew and break Lister, Rimmer and Birdman out of the hold.

Our crew desperately try to turn Pete back into a sparrow before the time freeze wears off but Pete eats a scutter who was holding the time wand. The crew put out a heap of food for Pete and he eats it but then runs amok on the ship. Meanwhile the freeze wears off and Rimmer and Lister are hauled in front of Hollister who gives them a long and detailed account of how Pete ate almost all of the ship's supplies and then was sick. The time wand is retrieved and Hollister demands that they turn Pete back to normal. Lister and Rimmer complete the task and destroy the time wand, but they notice all too late that Pete had laid an egg that begins to hatch...

An escape pod docks with the Dwarf and is carrying the only survivor of a ship which was attacked by a genetically-engineered corrosive life form. Unfortunately, the corrosive material is also on board and begins to eat away at Red Dwarf. Meanwhile Lister tricks Kryten into believing that Kochanski's 'time-of-the-month' is an event to be celebrated and he embarrasses himself in front of her. Plotting revenge, Kryten steals four flagons of illegal alcohol from an inmate and leaves it in Lister and Rimmer's cell just before an inspection. Lister discovers the alcohol and he and Rimmer are forced to drink it before their inspection. They only take one mouthful out of the bottle and are immediately drunk. Meanwhile, the crew learn of the life form destroying Red Dwarf and plan to abandon ship, leaving the prisoners aboard to die. The gang figure out a way to combat the life form by creating a doorway into an opposite universe and finding the opposite to the corrosive material.