After the death of his protégé Jason Todd, Bruce Wayne retired his Batman persona. Ten years later, in mid-1986, Gotham City is overrun with crime and terrorized by a gang known as the Mutants. The 55-year-old Wayne maintains a friendship with 70-year-old retiring Police Commissioner James Gordon (who knows Wayne was Batman), although he has lost touch with Dick Grayson. At the same time, the Joker has been catatonic in Arkham Asylum since Wayne's retirement. Arkham inmate and former district attorney Harvey Dent undergoes plastic surgery to repair his disfigured face. Although he is declared sane, he quickly goes into hiding following his release. Dent's disappearance, news stories of the crime epidemic, and the memory of his parents' deaths drive Wayne to become Batman once more. He combats crimes and rescues 14-year-old Carrie Kelley, but struggles with the physical limitations of age.

Public reaction to his return is divided. Dent's psychologist Bartholomew Wolper blames Batman for creating his own rogues gallery. Dent resurfaces, threatening to blow up a building unless he is paid a ransom. Batman defeats Dent's henchmen, learning that the bombs will explode even if the ransom is paid; he realizes that Dent intends to kill himself. Batman disables one bomb, and the other detonates harmlessly. He defeats Dent, who reveals that he thinks the reconstructive surgery was botched, as he considers his undamaged half as disfigured. Kelley dresses as Robin and looks for Batman, who attacks a gathering of the Mutants with a tank-like Batmobile, incapacitating most of them. The Mutant leader challenges Batman to a duel, and he accepts to prove that he can win. The Mutant leader, who is in his prime, nearly kills Batman, but Kelley distracts him long enough for Batman to subdue him. The leader and many gang members are arrested. Injured, Batman returns to the Batcave with Kelley and allows her to become his protégé despite protests from his butler, Alfred Pennyworth.

Batman has Kelley disguise herself as a Mutant, and she lures the gang to a sewer outlet at the West River. At the Gotham City Police Department, the Mutant leader murders the mayor during negotiations. Commissioner Gordon deliberately releases the leader, providing an escape from the building, which leads to the sewer outlet. Before the amassed Mutants, Batman fights the leader in a mud pit; the mud slows the leader, removing his physical advantage, and Batman overpowers him. Seeing their leader's defeat, the Mutants divide into smaller gangs, with one becoming the "Sons of Batman," a violent vigilante group. Batman's victory becomes public, and the city's inhabitants are inspired to stand up against crime. Gordon retires after meeting his anti-Batman successor, Ellen Yindel. In Arkham, televised reports about Batman bring the Joker out of his catatonic state.
In late 1986, feigning remorse for his past, Joker convinces Wolper, who considers the Joker to be his favorite patient, to take him on a talk show to tell his story, and makes plans for his escape with Abner, an old henchman, who supplies him with mind-controlling lipstick. Meanwhile, Clark Kent, a.k.a. Superman, who works as a government operative in exchange for being allowed to covertly help people, is asked by President Ronald Reagan to end Batman's vigilantism. Framing these events is a growing hostility between the US and the Soviet Union over possession of the island of Corto Maltese. As Batman's continued presence humiliates the national authorities, Commission…

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