A gang of masked criminals rob a mafia-owned bank in Gotham City, betraying and killing each other until the sole survivor, the Joker, reveals himself as the mastermind and escapes with the money. The vigilante Batman, district attorney Harvey Dent, and police lieutenant Jim Gordon ally to eliminate Gotham's organized crime. Batman's true identity, the billionaire Bruce Wayne, publicly supports Dent as Gotham's legitimate protector, as Wayne believes Dent's success will allow Batman to retire, allowing him to romantically pursue his childhood friend Rachel Dawes, despite her relationship with Dent.
Gotham's mafia bosses gather to discuss protecting their organizations from the Joker, the police, and Batman. The Joker interrupts the meeting and offers to kill Batman for half of the fortune their accountant, Lau, concealed before fleeing to Hong Kong to avoid extradition. With the help of Wayne Enterprises CEO Lucius Fox, Batman finds Lau in Hong Kong and returns him to the custody of Gotham police. His testimony enables Dent to apprehend the crime families. The bosses accept the Joker's offer, and he kills high-profile targets involved in the trial, including the judge and police commissioner. Although Gordon saves the mayor, the Joker threatens that his attacks will continue until Batman reveals his identity. He targets Dent at a fundraising dinner and throws Rachel out of a window, but Batman rescues her.
Wayne struggles to understand the Joker's motives, but his butler Alfred Pennyworth says "some men just want to watch the world burn." Dent claims he is Batman to lure out the Joker, who attacks the police convoy transporting him. Batman and Gordon apprehend the Joker, and Gordon is promoted to commissioner. At the police station, Batman interrogates the Joker, who says he finds Batman entertaining and has no intention of killing him. Having deduced Batman's feelings for Rachel, the Joker reveals she and Dent are being held separately in buildings rigged to explode. Batman races to rescue Rachel while Gordon and the other officers go after Dent, but they discover the Joker gave their positions in reverse. The explosives detonate, killing Rachel and severely burning Dent's face on one side. The Joker escapes custody, extracts the fortune's location from Lau, and burns it, killing Lau in the process.
Wayne Enterprises accountant Coleman Reese deduces and tries to expose Batman's identity, but the Joker threatens to blow up a hospital unless Reese is killed. While the police evacuate hospitals and Gordon struggles to keep Reese alive, the Joker meets with a disillusioned Dent, persuading him to take the law into his own hands and avenge Rachel. Dent defers his decision-making to his now half-scarred, two-headed coin, killing the corrupt officers and the mafia involved in Rachel's death. As panic grips the city, the Joker reveals two evacuation ferries, one carrying civilians and the other prisoners, are rigged to explode at midnight unless one group sacrifices the other. To the Joker's disbelief, the passengers refuse to kill one another. Batman subdues the Joker but refuses to kill him. Before the police arrest the Joker, he says although Batman proved incorruptible, his plan to corrupt Dent has succeeded.
Dent takes Gordon's family hostage, blaming his negligence for Rachel's death. He flips his coin to decide their fates, but Batman tackles him to save Gordon's son, and Dent falls to his death. Believing Dent is the hero the city needs and the truth of his corruption will harm Gotham, Batman takes the blame for his death and actions and persuades Gordon to conceal the truth. Pennyworth burns an undelivered letter to Wayne from Rachel, who said she chose Dent, and Fox destroys the invasive surveillance network that helped Batman find the Joker. The city mourns Dent as a hero, and the police launch a manhunt for Batman.
