The film's opening scene is a news report that shows how Harvey Dent became Two-Face: While he was prosecuting Sal Maroni, Maroni threw acid in Harvey's face while Batman tried to stop him but failed. At Arkham Asylum, Doctor Burton discovers Two-Face's escape, encountering his psychologist hanged in Two-Face's cell with "The Bat Must Die" written in blood on the wall.
In Gotham City, Batman stops a hostage situation in a bank caused by Two-Face. However, Two-Face escapes; during the fight scene between Two-Face and Batman, they both struggle for control of the helicopter, and Two-Face accuses Batman of being "a killer too", a direct reference to Batman having killed the Joker, the Penguin and several of their respective goons. Two-face then manages to escape by the parachute, after Batman realizes he has locked the steering wheel into position. Edward Nygma, a researcher at Wayne Enterprises specializing in technologies geared for mental and psychological therapy, uses this situation as a platform with which to develop a device to beam ones consciousness directly into another person's brain; Bruce Wayne - with whom Nygma is obsessed - rejects the invention, noting that it "raises too many questions", and Nygma angrily resigns from his position after using the device to kill his supervisor Fred Stickley, forging his suicide note . After meeting Batman-obsessed psychiatrist Dr. Chase Meridian, Bruce invites her to a charity circus event. There, Two-Face and his henchmen storm the event in an attempt to draw Batman out by threatening innocents, and in the process murder The Flying Graysons, a family of circus daredevils who attempt to stop him. The youngest member, 16-year-old motorcycle-riding escape-artist Dick, survives and throws Two-Face's bomb into the river.
Bruce assumes responsibility for Dick and allows him to stay at Wayne Manor. Dick then declares his intention to kill Two-Face and avenge his family's murder, and when he discovers Bruce's secret identity as Batman, he insists on becoming his partner, "Robin". Meanwhile, Nygma becomes a criminal known as the "Riddler", a master of puzzles and quizzes, and forms an alliance with Two-Face. The two work together to steal capital for the mass production and promotion of Nygma's device; the construction of NygmaTech follows, as Edward Nygma is seen with a hard hat helping with the construction of his headquarters on Claw Island. During the casino robbery, the security guard Riddler fails to punch out is then brutally beaten, presumably to death. Batman follows the robbery signal on a tracking device in the Batmobile. He shows up at the crime scene and finds he is at the wrong place (a beauty salon), in which a room full of girls gawks at him. The Riddler had been throwing Batman off the track by using his apparatus on Claw Island to mess with the Batmobile's tracking device, thus giving Riddler and Two-Face moments of free rein over the city.
Using his device, Nygma can read and control people's minds, and steal their intelligence quotient. At a business party, Nygma deduces Bruce's secret identity after Two-Face attacks the party and nearly kills Batman, but Robin arrives just in time to save his life. Meanwhile, Chase realizes her love for Bruce surpasses her obsession with Batman. However, Two-Face and the Riddler later converge into Wayne Manor. The Riddler enters the Batcave and destroys most of the equipment, and he and Two-Face kidnap Chase, who the Riddler is romantic to, while leaving Bruce another riddle.
After solving the last riddle, Batman and Robin locate the Riddler's lair on Claw Island, where both are separated upon reaching the island. Robin then encounters Two-Face and manages to bring him to his knees; realizing that hed rather see Dent suffer behind bars, Robin yields, allowing Two-Face to get the upper hand and capture Robin. Meanwhile, Batman manages to make his way into the Riddler's lair, where Robin and Chase are revealed as hostages, bound and held over a watery chasm, giving Batman a choice of saving just one hostage. Robin escapes his bindings, however, and smashes his way out of his tube; Batman saves Chase while Robin manages to destroy the NygmaTech machinery, driving the Riddler into a mental breakdown in the process. During the battle, Two-Face falls to his death. The Riddler is finally sent to Arkham Asylum, and Chase is asked to consult on his case. Nygma offers to reveal the identity of Batman to her, but he believes that he himself is Batman, due to his damaged memories.
The ending, as with the previous Batman films, involves Alfred in the limousine, the camera tracking upward through the Gotham cityscape, followed by a rooftop shot involving a silhouetted hero facing the Bat Signal. When Alfred drives Doctor Chase Meridian back to Gotham she asks him "Does it ever end, Alfred?", to which he replies, "No, Doctor Meridian, not in this lifetime..." The Bat-Signal shines on the night sky and Batman is standing on a pillar looking ahead. Robin then comes into shot and joins his new partner as they both leap off the pillar, towards the camera.