Opening fight: Killer Croc, a circus freak on an adrenaline boosted rampage hits the streets and Batman puts him down. Hard. As the film opens up, Edward Nygma, a talented inventor, engineer, mathemetician and programmer comes to Gotham. A gentleman with his own company, he wants to partner with Wayne Enterprises to blah-blah-blah. Through riddles and enigmatic sayings, he seems to imply that he is a criminal and defies anyone to catch him. Bruce picks up on some of these about the time he attends the circus, cameo Silver St. Cloud, flying Graysons die, Richard sees the killer, Bruce, sees himself in the kid, retroactively sets up a trust fund in his parent's name and thinks little more of it.
Mysteries begin pouring in, Bruce wayne works these, while trying to fight the fact that he is becoming more remorseless, psychotic and unstable. The clues that Nygma leaves become a sort of obsession for him. When he visits the young orphan Grayson, staying with Leslie Thompkins (flashback to when she took care of Bruce), he asks, casually what the Grayson boy wants to be when he grows up. Leslie calmly, unknowing of the significance, replies "Batman." Bruce goes over to have a talk with Grayson who is training hard on the jungle gym. Bruce feels out the kids thought process, and Grayson happens to recognize the riddle that Bruce is holding as it relates to a children's rhyme or video game.
Word gets out that the Grayson kid knows who's responsible for his parents' death. At the same time, Grayson gets it in his head that he's going to off Zucco and heads out on his own vigilante thing. He's about 14, I guess. Grayson, with two escrima sticks and some circus tricks manages to fell three thugs, but is overwhelmed, unable to make finishing strikes and saved by Batman, who has solved the most recent riddle which involves killing the Grayson kid.
Taking him back to the Batcave, Bruce keeps the kid there for the time being as he goes to deal with the next part of the plot. Getting mangled by the hired guns that Riddler has brought in (Bane, Lady Shiva, Deadshot and Ventriloquist), Grayson and Alfred help save his life, this is when Grayson discovers the secret, and is shocked as all get out. When Bruce comes to, Grayson is in the cave, training on his equipment. He thinks he can be the next Batman. Bouncing ideas off of each other, they solve the next riddle, Batman takes the boy back to a safe haven (perhaps Wayne towers with Lucius) and goes to the climactic battle.
Grayson makeshifts Robin out of this set up, and follows, and ends up being Batman's recon, eyes in the air, crucial distractions and etc as he takes out the mercs. When confronting Riddler and Zucco, Robin bursts in through the window, thirsting for blood, to Riddler's joy (he doesn't want to split anything) and Batman's non-reaction. Batman informs Grayson that he (Batman) knew that he (Grayson) had planned this, putting word out on himself about being the witness so that he would be protected by Batman leading to this moment when he'd have a chance to kill Zucco... ala All-Star Batman gives him his chance and instead of killing him, Grayson realizes that Riddler had planned to use the kid to kill Zucco from the get go, just as he planned to use Batman's obsession to use riddles to target the competition with Batman.
Twists all revealed, Batman lays an unholy beat down on Riddler but is stopped short of crippling him for life by Grayson. Grayson stays with Thompkins and trains. The 'Robin' costume stays in the cave until he's ready.