The Allied Nations has managed to enter the country of Shadaloo to take down the armed forces of a general named M. Bison. Bison has captured several dozen hostages who are held to their own wills. During a negotation between Bison and Allied Nations' commander Guile, Bison demands a ransom of $20 billion dollars in American money within three days or the hostages will die and the Allied Nations will be blamed for their deaths. Guile's assistant named Cammy as only able to trace a little bit of Bison's signal from a river delta region outside of Shadaloo City. One of the hostages is a man named Carlos Blanka, a peacekeeper and a friend of Guile's. Blanka ends up being a test subject for Bison's mutated soldier project. If the project is successful it can lead Bison to create a whole army of powerful soldiers to conquor the world. Upon the experiment, Blanka is placed in an incubator where he is forced to watch horrific images that will make him become a mindless beast with no fear. The captured scientist in charge of the project Dr. Dhalsim, decided to ruin Bison's plans for an ultimate army by treaking the brain washing system in order to allow Blanka to retain his humanity.
Meanwhile at an underground area, Ryu & Ken attempted to sell fake arms to the Shadaloo crime syndicate's leader Viktor Sagat. Who plans to have both con artists killed by having them fight his prized fighter Vega. This plan was nixed when Guile enters the building and takes everyone into custody for violating curfew. When seeing Ryu and Ken fighting Sagat's guards, Guile asked them to help him out in taking down Sagat's gang and fake Guile's own death. This plan hits nerve on a news reporter named Chun-Li who is seeking revenge towards M. Bison for the death of her father. Her friends E. Honda & Balrog have a bone to pick with Sagat. They attempted to kill Bison and Sagat with a truck bomb, which destroyed most of Bison's arms storage but the dictator still lives. Ken & Ryu who are undercover as new henchmen turn against Chun-Li in order to gain trust from M. Bison so that way they can be lead to the hideout. As long as they have their tracking devices on them, Guile and the Allied Nations can pin point the location of the dictator's hideout.
Once they were invited into the hideout which turns out to be located under a Cambodian temple, Ken & Ryu freed Honda and Balrog from their prison. Now a team of four seek out to find Chun-Li. Chun-Li was being held in Bison's private quarters where she attempts to fight him and finally fullfill her goal. That goal however was cut off when Ryu and the other interutted her long enough for Bison to make an escape. The room was sealed and gas was starting to fill it in attempts to kill them. Back at the Allied Nations' base, Guile managed to pinpoint Ryu and Ken's location which is where they'll find M. Bison's hideout. Since an air strike is no match for the hideout's air-defences, Guile orders a platoon of combat boats to take on the hideout by river. However a group of peace negotiators inform Guile that there's no need for an invasion when the ransom is about ready to be given to M. Bison. Guile protests this decision as he sees this situation to be too good to back out on so he rallies his most trusted comrades on his own to the hideout.
Guile along with Cammy and Hawk head up the river using a weapons system to take down the defense radar that was planted by Bison's forces. Bison detects the speed boat and activates a mine to blow it up. The explosion nearly missed the three soldiers as they safely made it to the hideout. Guile gets ambushed by the now mutated Blanka who ten suddenly recognizes Guile as his friend. Guile was prepared to kill Blanka to end his suffering rather than living his whole life as a freak of nature. However Dr. Dhalsim intervene and adviced him to not kill Blanka and Guile complied to the good doctor's wishes to not kill his best friend. At the same time, the 72 hour time limit had just ended andafter Bison learns that the ransom money has not been delivered he proceeded in the killing of the hostages. After learning from the doctor that Blanka was meant to kill the hostages, Guile enters the elevated chamber that was ment for Blanka and was hoist up to the command center where he is now face to face with Bison. At the same time, a platoon of Allied Nations combat boats have arrived and started a battle against Bison's army. Ken was about to leave the battle, but decided to save Ryu from an ambush and the two ended up in a fight against Sagat and Vega. They triumph in the battle with both Sagat and Vega defeated.
During Guile and Bison's personal duel, Bison knocked off at a bank of hard drives, only for Guile to learn that Bison's suit is powdered with electromagnetism allowing him to shoot bolts of lightning giving Guile a harder time to fight. Bison attempts to give Guile a fatal blow, Guile manages to pull off a well-timed roadhouse kick which sends M. Bison crashing into a giant monitor screen. Resulting in a gigantic explosion which destroyed the power source of the hideout allowing the hostages to be freed and were guide out of the base safely. Guile tries to convince the doctor and Blanka to escape with him but Blanka felt there is no place for him i nthe outside world. While the doctor who is responsible for Blanka's mutation decided to keep Blanka company until the end. With the temple crumbling down everyone believed that Guile is dead, only to see him escape from the collapsing hideout. After being reunited with his friends, they all gave out their winning poses as the last structure of the temples falls downs.
Just as the whole crisis seem to have ended, the main computer in Bison's now ruined hideout is displaying it's own batteries being recharged from solar energy. The computer uses a heart restarter on the presumably dead Bison. This process keeps going until Bison is alive enough to punch his fist through the rumble. While on the computer screen, the option labeled World Domination: Replay was selected. Hinting that this isn't the last time the Allied Nations have heard from M. Bison.