The film begins with the disguised Joker and various clown masked henchmen robbing a mob-owned bank, and systematically double crossing each other. Eventually the only one remaining is the disguised Joker, who reveals himself to the bank owner and then takes the money for himself and drives away in a school bus. That night, multiple Batman impersonators, armed with guns, interrupt a drug deal/meeting between the Chechen and his gangsters and the Scarecrow. The real Batman shows up and manages to subdue everyone. However, he is hit multiple times and is brutally bitten in weak spots of his armor by Rottweiler dogs. Sustaining such injuries suffered during the confrontation force him to make the decision of acquiring a new, more versatile suit of armor.
With the rise of Criminal Underworld, D.A. Harvey Dent begins to place more and more criminals behind bars, even manages to defend himself against an assassination attempt by knocking out his would-be assassin. Batman and Lieutenant James Gordon contemplate bringing Dent in on their plan to eradicate the mob, and the possibility that Dent will become the hero to the people that Batman cannot be. Harvey is nicknamed the ‘White Knight of Gotham’ and the Police have their own nickname for him. At the same time, Bruce Wayne and Harvey are both competing for the love of Rachel Dawes; however, Dawes and Dent are romantically involved in a relationship.
The mob bosses see this combined effort of Harvey Dent, Batman and Gotham City Police as a threat and decide to meet to discuss how to handle it. A Chinese mobster accountant, Lau, lets the gang leaders know that he has taken their money to Hong Kong to prevent the police and the district attorney from seizing it in an imminent bank raid. The Joker arrives and proposes to kill Batman for them, and also tries to convince them that Lau will give them all up to the police if he is caught. The mob bosses are not sure if they should take up the Joker’s offer, who leaves his ‘card’ behind for them to contact him. Realizing the threat and the need of taking down Lau and finding the mob bosses money, Wayne is given highly more adjustable and maneuverable equipment for his suit by Lucius Fox. Also included in Batman’s new armor is a new designed helmet, allowing Wayne’s head to turn and arm gauntlets that are able to project the defense spikes. Taking the suit with him, Fox then travels with Mr. Wayne to Hong Kong and gives Wayne a sonar-device that can lock onto cell phones and emit a visual image of the phone’s surroundings. That night Batman, donning his new suit, manages to infiltrate Lau’s office, take out the protection and escape with Lau. After Batman successfully returns to Gotham he delivers Lau to the Gotham City police. Lau makes a deal with the D.A. and Attorney Rachel Dawes to give the name of all of his clients in return for being placed on county watch. The mob bosses are all placed under arrest. However, a few mobsters manage to evade the prison system. They then agree to pay the Joker half of their money in return for killing Batman. The Joker broadcasts a message to all of Gotham stating that if the Batman does not turn himself in to the police, then he will kill innocent people every day. The Joker gives various clues as to who he plans on killing next and begins murdering public officials, including Commissioner Loeb and a city official judge and Harvey Dent and succeeds in killing the Commissioner and the Judge.
At a fund raising party thrown for Dent by Bruce, Harvey asks Rachel, in a private area, if she will marry him. Before she can give a full answer Harvey is locked in a room just as the Joker interrupts the party, wanting to know where Harvey is so that he can kill him. When the Joker cannot find Dent, Batman eventually arrives and takes on the Joker. The Joker and Batman square off along with the Joker’s henchmen. Eventually the confrontation ends with Batman saving the life of Rachel Dawes. The next day, at a public service memorial for the late Commissioner, the Joker, disguised as a military official (The Joker and his henchmen stripped the actual Ceremonial arms of their uniforms, as well as tied them up, blindfolded and gagged them in his room prior to the funeral), shoots at the mayor of the city. But at the last moment Jim Gordon jumps in front of him getting shot in the chest, yet saving the mayor. Dent manages to capture and interrogate a thug working for the Joker. However, his interrogation is interrupted by Batman. Realizing what is happening, Wayne, disguised as Batman, states to Dent that he needs to reveal who he truly is in order to save Gotham and stop the killings. At a press conference the next day, held by Dent, Wayne is about to step forth but before he can do so, Dent publicly admits to being "the Batman" to draw the Joker out of hiding. Rachel is upset with Bruce not interfering and admitting that Harvey is not Batman and that he is. She leaves Alfred a note to give to Bruce ‘when the time is right’. Arrested and in route to re-location, Harvey’s transport is ambushed by the Joker and a semi-rig full of his henchmen and thugs. The Joker attempts to kill Dent during transport, and using a rocket launcher, hits the Batmobile causing it to burst into flames. Here, Batman takes on his ‘secondary’ transportation, the Batpod which bursts out of the side of the damaged Batmobile. Batman gets wounded during this second confrontation as the Joker approaches. Suddenly, Gordon, who faked his death, sneaks up behind him and arrests him.
Gordon is promoted to commissioner by Mayor Garcia. With the Joker in custody, everything seems to be safe. Unfortunately, a bit later, it is revealed that Harvey Dent never made it home. When questioned as to what he did to him, the Joker hints that Detective Wuerz was the one responsible for Dent's Predicament (which later turns out to be true.), then Commissioner Gordon leaves the Joker at Batman's hands. Batman then interrogates the Joker in a brutal fashion until he reveals that Rachel and Dent have been taken to opposite sides of the city, far-enough apart that Batman does not have time to save both of them. Batman speeds off to save Rachel, while Gordon and the police head after Dent. Unknown to them, the Joker has switched the locations, sending Batman after Dent and Gordon after Rachel. Realizing the situation, Rachel and Harvey, tied to chairs, are able to communicate through a phone. The two reassure each other that everything will be okay as Dent attempts to escape but fails and falls and his left side is immersed in oil. The Joker provokes a police-officer to take him on and manages to hold him as a hostage and walk out of the room and into the main lobby. Then, with the help of a pre-planted phone bomb, the Joker escapes with Lau in tow. Rachel tells Harvey that she will marry him just as Batman arrives at the location that was supposed to be Rachel’s location and rescues Dent. Then both buildings explode; the left side of Dent's face is burned during the explosion. Gordon does not reach Rachel in time; she dies in the explosion. Alfred reads the letter Rachel left which says that she is going to marry Harvey and can't wait anymore for Bruce. He was going to give it to Bruce but seeing him in grief he decides not to Bruce feels guilty for the death of Rachel and for what has happened to Dent stating he is "Gotham's true hero" and Alfred tells him that Gotham will have to make do with Batman, Bruce also stated that he knew Rachel would have waited for him to stop being Batman and they would have been together. In the hospital, Dent is driven to madness over the loss of Rachel, which he blames on Batman, Gordon and the Joker. When Gordon asks if he knew who took him captive he asks him why would he listen to him now and then demands what was the nickname the cops gave him which Gordon reveals to be Harvey "Two face" and Harvey then says "Why should I hide what I have become?". The Joker publicly states that he no longer cares about killing the Batman because he is ‘too much fun’ and that if the Wayne employee, Mr. Reese, who supposedly knows who Batman really is, is not killed to prevent the secret from slipping, then he will blow up a hospital. All hospitals begin immediate evacuation. At Gotham General, Harvey, unable to move due to bed restraints, is convinced by the Joker to exact revenge on the cops, mobsters, Gordon and Batman for killing his love. Harvey leaves and the Joker blows up the hospital.
While "Harvey Two-Face" confronts the corrupt cops and the mobsters one by one, flipping a coin to decide their fates(One side is burnt and the other is clear), the Joker burns Lau at the top of the clown's share of mob money. The Joker then declares that he will rule the streets and that anyone left in Gotham at nightfall will be subject to his rule. He states that if order is to be in Gotham Batman must die. Eventually the city attempts to leave, although, all road ways and bridges have been cut off. However, two ferries remain and each one becomes full. One carries criminals from Arkham and other prisons and the other, regular citizens. The Joker plants explosives on the two ferries of evacuees and gives the passengers on board the chance to destroy the opposing vessel, in order to save their own lives. Using the help of his ‘sonar-vision’ and Lucius Fox, Batman tracks the Joker to an uncompleted skyscraper. Batman takes down the henchmen, disguised as hostages, and takes down the SWAT team from killing the innocent citizens, forced to dress like henchmen. The Joker and Batman have one final confrontation. The Joker sends Rottweiler dogs at Batman, who manages to get rid of them. However, Batman is repeatedly hit by the Joker, who uses a steel pipe. The Joker manages to subdue Batman but eventually, is caught off guard when Batman projects the steel spikes at the Joker causing him to release his grip on Batman. Then being thrown over the edge of the building, yet saved by Batman’s grappling wire, the Joker hangs upside down as Batman prevents the Joker from blowing up the ferries when both vessels' occupants decide they would rather not sacrifice the lives of the passengers in the other vessel for their own. Elsewhere Dent forces an police officer into getting Gordons's Family out of their home and lead them to him, the officer tells Gordon about the situation but is interrupted by Dent. Dent then tells Gordon where he and his family is by telling him he is "Where my family died." . Gordon goes to the place where Rachel died Two face beats down Gordon and Dent is angry to see cops outside the building, Gordon tells him that they only know their is a situation and know nothing about what is happening Dent then decides to kill Gordon's son and stands at the edge of the building with the boy threatening to kill the him.
Remaining upside down, the Joker acknowledges that Batman really is incorruptible, but that Dent was not, and that he has unleashed Harvey's madness upon the city. Batman finds the two, along with Gordon's family, at the building where Rachel died. Two-Face proceeds to judge Batman, himself, and Gordon's son through the chance of a coin flip, which he sees as the only fairness left in the world. Two-Face shoots Batman in the stomach,he flips the coin again to decide his fate, but before he can determine the boy's fate, Batman tackles him over the side of the building, saving Gordon's son. As Dent lies motionless on the ground, Batman and Gordon decide that the Joker would win if anyone found out about Dent's corruption and madness. Batman convinces Gordon to let him take all the blame for Dent's murders in order to preserve Dent's image as Gotham’s ‘White Knight’ and to give the city hope. As Gordon destroys the Bat-Signal, a manhunt is issued for Batman. Alfred burns the note Rachel left knowing that Bruce will be heartbroken if he reads it and Lucius destroys the 'sonar vision' machine Batman used to capture Joker and Gotham has a funeral for the "White Knight". Gordon’s son does not understand the reasoning for why Batman must be hunted and has returned to the status of ‘illegal vigilante’ as his father states that he must be, because he can take it. He is the hero the city deserves, but not the one it needs right now. He is the watchful protector; the silent guardian; the Dark Knight.
Approaching its 200th anniversary, Gotham City's leaders fear that the high level of criminal activity will deter citizens from attending the celebrations. Gotham's mayor William Borg orders District Attorney Harvey Dent to make the city safe again, in hopes of revitalizing local business. Dent, in turn, targets mob boss Carl Grissom, who sponsors much of the criminal activity within Gotham and has paid off a significant segment of the police force.
Meanwhile, a dark vigilante dressed as a bat has attracted the attention of both the police and the local media. Newspaper reporter Alexander Knox is attempting to investigate, but his questions are deflected by skeptical cops, including Lt. Eckhardt, one of many police officers on the take from Grissom. After stonewalling Knox, Eckhardt is shown taking a payoff from Grissom's second in command, Jack Napier.
Grissom, on discovering that his mistress is involved with Napier, sets him up to be killed by Eckhardt in a raid on Axis Chemicals. The plot is foiled by the arrival of Police Commissioner James Gordon, who wants Napier taken alive, and Batman. Batman captures Napier, but releases him when Bob the Goon holds Gordon hostage at gunpoint. Batman vanishes, and in the confusion, Napier shoots and kills Eckhardt, then attempts to shoot a re-emerged Batman. The latter deflects his shot, sending shrapnel into the former's face. Napier falls over a railing into a vat of chemicals, presumably to his death. Although surrounded by the police, Batman escapes the scene.
Batman, as we discover, is actually billionaire industrialist Bruce Wayne, an orphan who lives alone in the large mansion Wayne Manor, with only his butler Alfred Pennyworth in attendance. At a fundraising party, Bruce meets and falls for famous photojournalist Vicki Vale, recently arrived in town to cover the "Bat Man phenomenon."
Napier, in the meantime, is not dead but horribly disfigured, with white skin, green hair, and a permanent grin (after a botched reconstructive surgery attempt). Already erratic, the trauma has apparently driven him completely insane. Calling himself "The Joker", he kills Grissom and usurps his criminal empire. His first scheme is to spread terror in the city by creating hygiene products that can kill by fatal hilarity when used in certain combinations, laced with a deadly chemical known as "Smylex." Following the death of a news anchor on-air, the city becomes paralyzed with fear. Making war on several fronts, the Joker then sets a trap at the Gotham Museum of Art for Vicki, with whom he has become smitten; his fellows start to slash and deface the entire legacy of Western Art, but as one of them approaches to Francis Bacon's Figure with Meat, the Joker stops him saying "I kinda like this one". Batman intervenes and saves Vicki, to whom he then gives the secret of the Joker's chemical combinations. Batman renders her unconscious, and she awakes at home. Incensed at Batman eluding him while taking Vale and ruining his poisoning scheme, the Joker vows to eliminate the mysterious vigilante for interfering with his plans.
Vicki's apartment is then the scene of a confrontation between the Joker, who has come to woo her, and Bruce, who has come to try and confess about his double-life but not getting very far. After Bruce challenges the Joker to a fight, the Joker pulls a gun and asks him: "Tell me something, friend. Have you ever danced with the devil by the pale moonlight?" He then shoots Bruce. The Joker then leaves amid his own hoopla, and Vicki is shocked to see that Bruce has disappeared, leaving behind only a metal platter which he used as an impromptu bulletproof vest.
That confrontation confirmed for Bruce that the Joker is actually the man who murdered his parents many, many years ago in Gotham. The final clue was that his parents' murderer said the same phrase to him as The Joker said in Vicki's apartment ("Ever dance with the Devil by the pale moonlight?"). As Bruce grapples with this memory, he is shocked by the sudden appearance of Vicki in the Bat Cave; Alfred having decided that she deserved to know the truth.
The Joker has put his own plans in motion to upstage the city's canceled anniversary celebrations with a grand spectacle: a nighttime parade at which he will dispense $20 million in free cash. Vicki and Knox are there to cover the pandemonium, and they notice strange tanks on the balloons. In the middle of his generosity, the Joker begins gassing the crowd. Batman arrives in his bat-shaped jet(in this film called the batwing) and snatches the balloons away to carry them out of the city. Furious, the Joker shoots Bob the Goon, his number one thug. Batman returns to make a strafing run on the Joker, who responds by shooting down the jet with an insanely long-barreled revolver. Vicki approaches the downed craft but is captured by the Joker, who leads her to the top of Gotham Cathedral. Dazed but not finished, Batman pursues. At the top of the cathedral, the two adversaries confront each other in single combat.
In a moment of opportunity, the Joker pulls Batman and Vicki off the belfry, where they cling to the ledge for their lives. as The Joker begins mocking them his helicopter appears and he grabs hold of a dangling ladder, about to escape. Batman shoots a wire around the Joker's leg, connecting it to a stone gargoyle on the ledge. As the Joker is lifted away, the wire pulls the gargoyle loose and he plummets to his death.
The movie ends with Commissioner Gordon announcing the Gotham police have arrested all the Joker's gang remnants who were not killed by Batman, and unveiling the Bat-Signal supplied by Batman with a note promising to return if the city needs him.