Tim Gunn warned them that the challenge required a "sophisticated" '70s look rather than the retro, vintage and literal looks they offered up last week.
Disaster struck early for poor Anya when she lost her money wallet at Mood and was forced to rely on the other designers to donate their spare change and fabric. Viktor was the only one who appeared reluctant to help out because, as he reasoned, it's a competition.
The girl pact between Anya, Laura and Kimberly appeared to fall apart slightly in the workroom when Laura wondered if she and Anya should tell Kimberly that her fabric choice wasn't current or popping. They decide not to and Kimberly is none the wiser.
Further drama comes when Viktor suspects Josh is copying some of the elements in the pleat design at the back of his jacket, while Tim tells Laura that judge Nina Garcia has her on her radar the most out of everyone and can get "bristly" about her taste level.
PiperLime.com guest editor and former The City star Olivia Palermo joined Nina, Heidi Klum and Michael Kors as guest judge at the runway. (Browse a gallery of all this week's designs below).
Anya was named the winner of the challenge for her second jumpsuit design, while all the judges were impressed at how good her first design was considering her $11.50 budget and use of muslin.
In a twist, Olivia told Bert that PiperLime.com also wanted to sell his second design on the website. The judges had all loved the beautiful elegance and simplicity of his two-tone, short dress with a belt detail.
Viktor was also praised for the amount of work he managed to do in the time period, delivering a well-tailored two-piece suit for his first design. The judges thought both his designs looked expensive, although they would have preferred his suit to be sexier and thought the T-shirt underneath would have been better paired with something else, although they all adored the shirt.
The judges were less positive about Laura's designs and those of Anthony Ryan and Josh, who ended up in the bottom two.
Laura's printed top and long, printed maxi skirt were criticised for not blending well together, while her one-piece dress would probably not translate well online. "They don't look like fashion," said Michael. "Just clothes. Not what is next."
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Meanwhile, the judges were confused by Josh's choices, with Michael saying the patterned pants of his first outfit would belong in the 1870s, not the 1970s. Michael thought there was "schizophrenia" between the outfits, calling his designs OTT and lacking the ease of the 1970s. Heidi said his patterned pant design was one of the worst outfits she had seen in a long time, while Nina agreed the fabric choice was "horrendous".
In the end, however, it was Anthony Ryan who was sent home because his one-piece dress was "like a tent" and his separates were unattractive. The judges weren't keen on his influence of the hippy '70s, with Heidi saying his models looked like "two boring girls" who lacked sex appeal or a cool factor.
Anthony Ryan said: "I feel really good about my time here. I definitely didn't expect to be so close to certain individuals on the show. I don't really think I got to do my best work on here but my voice was heard."
Project Runway airs Thursdays at 9/8c on Lifetime
See photographs of all the designers' looks this week below: