As Gotham City approaches its bicentennial, Mayor Borg orders district attorney Harvey Dent and police Commissioner Gordon to make the city safer. Meanwhile, reporter Alexander Knox and photojournalist Vicki Vale investigate rumors of a vigilante nicknamed “Batman” who is targeting the city’s criminals. While hosting a fundraiser at his manor, billionaire industrialist Bruce Wayne, who created Batman in the aftermath of his parents’ murder during his childhood, meets with Vale during the event, but cuts short their meeting to secretly pursue Gordon, also attending, when he leaves on police business.
Mob boss Carl Grissom, whom Dent and Gordon are targeting, sends his sociopathic second-in-command Jack Napier to raid Axis Chemicals, unaware it is a set-up aimed at having him murdered for sleeping with Grissom’s mistress Alicia. Although corrupt police lieutenant Eckhardt arranges the hit on Napier by conducting an unauthorized police operation, Gordon arrives, takes command, and orders officers to capture him alive. When Batman arrives to prevent Napier’s escape, Eckhardt is killed during the confrontation, while Napier himself falls into a vat of chemicals when attempting to attack Batman, and is presumed dead by all. However, Napier survives, but is left disfigured with chalk white skin, emerald green hair, and a rictus grin, resulting in him being driven insane and assuming the name of “the Joker”. Joker murders Grissom for betraying him, takes over his criminal empire by murdering his syndicate members, and scars Alicia’s face to equal his disfigurement.
Batman begins working to find a way of stopping Joker when he begins terrorizing Gotham City through the use of hygiene products laced with “Smylex” – a deadly chemical which causes victims to die laughing with the same maniacal grin as the Joker. Joker soon becomes obsessed with Vicki and proceeds to lure her to the Gotham Museum of Art, where his henchmen destroy the works of art within. Batman arrives and rescues Vicki, escaping the Joker’s men, before taking her to his Batcave, providing her with the information from his research on Smylex that will allow the city’s residents to avoid exposure to the toxin. Conflicted with his love for her, Bruce attempts to explain about his alter-ego when visiting her at her apartment, only for Joker to interrupt the meeting. While Bruce avoids being killed with a serving tray, he realizes that Joker was the man who killed his parents, when he recognizes a question he uses from his childhood.
Vicki finds herself taken to the Batcave by Bruce’s butler, Alfred, who had been coaxing the relationship between the pair to bring out Bruce’s human side. After exposing his secret to Vicki, Bruce reveals he cannot focus on their relationship with Joker on the loose, and departs to destroy the Axis plant used to create Smylex. Meanwhile, Joker proceeds to lure Gotham’s citizens to a parade with the promise of free money, in order to dose them with Smylex gas held within giant parade balloons. Batman foils his plan by using his Batwing to remove the balloons. Joker proceeds to shoot down the Batwing, before capturing Vicki and taking her into a cathedral. Batman, surviving the crash, confronts him, saving Vicki, while proceeding to prevent Joker’s escape by helicopter with a heavy granite gargoyle, causing him to fall to his death.
Sometime later, Commissioner Gordon announces that the police have arrested the Joker’s men and unveils the Bat-Signal. Harvey Dent reads a note from Batman, promising that he will defend Gotham whenever crime strikes again. Vicki is taken to Wayne Manor by Alfred, who tells her that Bruce will be a little late. She responds that she is not surprised, as Batman looks at the signal’s projection from a rooftop, standing watch over the city.