Barely surviving Terry Bogard's Hurricane Punch, Geese Howard has fled into the deep wilderness to lick his terrible wounds. However his recuperation is interrupted by the battle hungry Wolfgang Krauser, his half-brother who has come to mock Geese's defeat and learn just who defeated him. Realizing that Krauser will use the information to challenge Bogard, Geese gleefully informs him.
Meanwhile, Terry Bogard is working at a shipyard when saves another worker from being crushed by several falling i-beams, although he strains his leg in the process. Afterwards, he meets a young boy known as Tony who idolizes fighters when Terry is challenged by Kim Kaphwan. Although able to defeat the Korean fighter, the match injures his leg. Awed, Tony pleads to become Terry's disciple only for him to be turned down.
Leaving Tony, Terry senses the presence of a powerful fighter, Wolfgang Krauser who challenges him to a match and is badly beaten much to Krauser's disappointment who had been expecting a much stronger opponent. Tony boldly declares that had Terry been fighting at his full strength, he would have easily beaten Krauser. Intrigued, Krauser informs Tony that if Terry survives, that he will be waiting him at Stroheim Castle in Germany and departs.
Terry awakens three days later being cared for by Tony's mother and learns that Tony had brought him home after his defeat at Krauser's hands. His mother pleads that Terry not to encourage Tony because his father was a martial artist much like Terry who died in a fight. Thanking her, Terry leaves and runs into Tony who tells him about Krauser's challenge. But Terry's fighting spirit is broken by the terrifying power he beheld from Krauser and he hangs up his gloves and starts drinking heavily. Unwilling to give up on Terry, Tony runs away from home to accompany the broken fighter on his drunken wanderings.
Learning of Terry's humbling defeat, Joe Higashi goes and finds Andy Bogard who is training at the dojo of his master, Jubei Yamada in Japan to inform of his brother's defeat. Stunned, Andy decides to avenge his brother's defeat only for Jubei to forbid him to go. Andy is his last and greatest student and will carry on his school after he is gone and he fears that he will be killed if he faces Krauser. A horrified Jubei warns Andy about the Krauser bloodline who have always been powerful fighters and despots. Although openly they have acted as the bodyguards to European nobility, all too often they were the true rulers in secret. Wolfgang is said to be the strongest and most ruthless of them all and Jubei tells a tale that when he was 16 years old, Wolfgang defiantly challenged his father to a duel and slaughtered his father without a single tear of remorse afterwards.
Refusing to listen to Jubei's warnings, Andy accompanied by his long-time friend Mai Shiranui, travels to Germany to challenge Krauser for himself. Joe Higashi on the other hand, decides to track down Terry.
Joe soon finds Terry is being held in jail for drunken brawling and bails his old friend out. But realizing that Terry is intent on crawling back into a bottle, he is stricken to realize that Terry's will has been destroyed by the monster known as Krauser and soon leaves, too ashamed to see his friend self-destruct.
Andy and Mai find out that Krauser is not in Stroheim but touring America ostentatiously on bodyguard duty for a European noble. However, one of Krauser's lackeys, Lawrence Blood spies them and kidnaps Mai to interrogate her. Andy duels and ultimately defeats Blood, rescuing Mai.
The heavyweight boxer and bully Axel Hawk attempts to challenge Terry who is a drunken stupor and Tony defends him. Hawk dismissively has his associate deal with the annoyance who proceeds to beat Tony to a pulp. However, Tony refuses to back down and Terry has a flashback to his childhood where he faced off fighters older and bigger than him and they kept beating him and knocking him down. Desperate to become stronger so that he could avenge his father, Terry refused to stay down and kept training and fighting until finally he was good enough to pummel them instead. Hawk's associate is unwilling to keep beating up a staggering and clearly beaten but still defiant Tony and refuses to continue, walking away much to Hawk's disgust. Revitalized by Tony's refusal to give up, Terry gets up and challenges Hawk and knocks him out with a single blow. Afterwards, Terry decides that he must face Krauser once more and begins training for his rematch.
Meanwhile, Joe has infiltrated Krauser's hotel room as a waiter but his disguise fails to fool a bored Krauser who swiftly destroys the Muy Thai Kickboxer but leaves the broken Joe alive, thanking him for "being entertaining".
Learning of Joe's injuries, Terry and Tony visit him in the hospital where Mai is looking after Joe. Shortly afterwards, Joe awakens and is relieved to see that Terry is back and Mai sends him to find an awaiting Andy at an abandoned temple. To Tony's shock, both Terry and Andy begin to fight one another as they have decided to determine that the stronger of the two will be the one to face Krauser in mortal combat. Although Andy seems to be overwhelming Terry at first, his brother proves victorious after unleashes a new technique, the Power Geyser.
Shortly afterwards, Terry and Tony arrive at Stroheim Castle and is welcomed by Krauser who admits that he is happy that Terry has come and the pair engage in a tremendous struggle which destroys most of the castle. The brutal battle comes to an end when Terry unleashes his Power Geyser which badly wounds Krauser who is astonished and thrilled, admitting that he has not felt "so alive in years". Defeated, Krauser applauds his foe before he hurls himself from the castle to his death.
Tony is taken aback at the barbaric savagery that he witnessed between Terry and Krauser. Terry warns that this is the true nature of fighting, not the noble ideal that Tony aspired to. Leaving Stroheim, the two arrive at a train station where Terry orders him to leave and turns away to continue his journey alone. Tony is shocked at this casual dismissal when suddenly his mother arrives and he runs up and embraces her. Then, a confused Tony asks how she knew where he was and learns that Terry arranged for her to come. Understanding, Tony promises Terry that he will take care of his mother and that someday, he will definitely be as strong as Terry who smiles in response.
Meanwhile, one of Geese's henchmen report how Krauser is dead and a healed Geese removes the last of his bandages and starts to laugh.
- Mark Hildreth as Terry Bogard
- Peter Wilds as Andy Bogard
- Jason Gray-Stanford as Joe Higashi
- Tony Sampson as Tony
- Sarah Sawatsky as Mai Shiranui
- French Tickner as Jubei Yamada
- Paul Dobson as Wolfgang Krauser
- Ward Perry as Geese Howard
- David Kaye as Kim Kaphwan
- Mina E. Mina as Tung Fu Rue
- Willow Johnson as Lily McGuire
- Lynda Boyd as Elza
- Michael Dobson as Axel Hawk
- Chafurin as Cheng Sinzan (Japanese Voice)
- Hisao Egawa as Big Bear (Japanese Voice)
- Nobuyuki Hiyama as Joe Higashi (Japanese Voice)
- Kikuko Inoue as Elza (Japanese Voice)
- Hirohiko Kakegawa as Axel Hawk (Japanese Voice)
- Nobutoshi Kanna as Hopper (Japanese Voice)
- Masami Kikuchi as Tony (Japanese Voice)
- Kotono Mitsuishi as Mai Shiranui (Japanese Voice)
- Daiki Nakamura as Kim Kaphwan (Japanese Voice)
- Keiichi Nanba as Andy Bogard (Japanese Voice)
- Kazukiyo Nishikiori as Terry Bogard (Japanese Voice)
- Hirotaka Suzuoki as Wolfgang Krauser (Japanese Voice)
- Koji Totani as Lawrence Blood (Japanese Voice)
- Koji Yada as Tung Fu Rue (Japanese Voice)
- Joji Yanami as Jubei Yamada (Japanese Voice)