As Gotham City approaches its bicentennial, Mayor Borg orders district attorney Harvey Dent (Billy Dee Williams) and police commissioner James Gordon to make the city safer. Meanwhile, reporter Alexander Knox and photojournalist Vicki Vale begin to investigate rumors of a vigilante nicknamed "Batman", who is targeting the city's criminals.
Later a mobster named Vinnie Ricorso is found not guilty of his crimes because of Grissom secretly bribing the judge while exiting the courthouse with over-muscled bodyguards and a lawyer. The Joker and his mimes suddenly push they way to Ricorso. Joker explains that he has watched Grissom's dead hand sign the statement with his own blood with a certain quill pen. Joker pulls out a ridiculously large quill pen that must have been four feet long, and then rips off his hat, showing his green hair. Joker presents himself as Vinnie's "Uncle Bingo", and uses the weapon to slice through his throat. Ricorso's lawyer and men then fled with the screaming as the Joker's mimes open fire with machine guns taken out of their satchels. Vicki notices that billionaire Bruce Wayne was actually strangely during that event.
At a fundraiser at his mansion, Bruce meets and falls for Vale, and the two begin a romantic relationship. Meanwhile, The Joker attacks the fundraiser at Wayne Manor. The Joker begins to steal the cash and jewelry from the rich in attendance. Joker embarrasses Commissioner Gordon at the party before leaving and Gordon vows to do something about it such as getting revenge.
Batman's alter-ego is Bruce Wayne, a billionaire industrialist who, as a child, witnessed his parents' murder at the hands of a psychotic mugger. Bruce begins to put all of the pieces together to who the Joker actually is. Mob boss Carl Grissom, who has already been targeted by Dent, discovers his mistress Alicia is involved with his second-in-command Jack Napier. With the help of corrupt police lieutenant Arnold Flass, Grissom sets Napier up to be killed in a raid at Axis Chemicals. However, Grissom's plan is foiled with the arrival of Commissioner Gordon, who wants Napier captured alive. In the ensuing shootout, Napier kills Flass and escapes.
Meanwhile, Alicia gets desperate since she wants to spend more time with the Joker. But the Joker ignores Alicia when Alicia tries to seduce him. Joker falls for Vicki and kidnaps her so she can take photos of when Mayor Borg is revealing a statue of John T. Gotham. Batman arrives and manages to takeout the Joker and his gang, however Borg ends up going insane in the process causing Deputy Mayor Hamilton Hill to become Acting Mayor Hamilton Hill. Joker returns to Alicia's apartment where Alicia is and Alicia expresses her rage since Joker brought Vicki along instead of her. Joker then pushed Alicia out the window in annoyance. At first the Joker felt guilty about it, but then he decided to be happy. Before Alicia died, she pleaded for the life of a baby. But the Joker refused to listen.
Bruce remembers that the Joker asked him at Vicki's apartment: "Have you ever danced with the devil by the pale moonlight?" before shooting him. Bruce, however, survives and escapes, as he had been wearing body armor. He remembers that the mugger who killed his parents asked the same question, and deduces that Napier is actually Joe Chill. Vicki suddenly appears in the Batcave, having been let in by Bruce's butler, Alfred Pennyworth. After telling her that with the Joker terrorizing Gotham, he cannot focus on their relationship, Bruce departs as Batman to confront Gordon for help. But Batman finds out from Alfred that Vicki has been kidnapped.
Joker forcibly takes Vicki to a ball at a night club owned by Grissom and attended by the city's elite, including Alexander Knox. Upon arrival, Joker mocked Grissom about Alicia by revealing that he killed her. Grissom gets angered by it and tries to kill Joker only to end up getting killed. Batman sneaks into the building and gets Knox to help him get the hostages out. Batman manages to fight off the Joker's goons while Joker is dancing with Vicki. The Joker is then able to escape and Batman leaves before Gordon could have him arrested.
It is revealed that the only reason Gordon wanted to arrest Batman is because he is jealous of him. Batman arrives at his office and proposes a short alliance until they could catch the Joker which Gordon eventually agrees to. Joker lures Batman and Gordon into Axis Chemicals where Grissom first tried to have him killed. Batman horrifies the Joker by acting crazy which makes Gordon and both the Joker realize that he is actually Bruce Wayne. Wanting to escape from everything, Joker jumps into a vat of chemicals and gets eaten alive by it.
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 by claiming that she is not a bit surprised, as Batman looks at the bat-signal, standing watch over the city.