In Gotham City, the Joker robs a mob bank with his accomplices, who he tricks into killing one another, ultimately killing the last one himself. That night, Batman and Lieutenant James Gordon contemplate including new district attorney Harvey Dent in their plan to eradicate the mob. However, Batman questions if Dent can be trusted. Bruce runs into Rachel Dawes and Dent, who are dating, and after talking to Dent, he realizes Dent's sincerity and decides to host a fundraiser for him. Mob bosses Sal Maroni, Gambol, and the Chechen meet with other underworld gangsters to discuss both Batman and Dent, who have been cracking down on the mobster's operations. Lau, a Chinese mafia accountant, informs them that he has hidden their money and fled to Hong Kong in an attempt to preempt Gordon's plan to seize the mobsters' funds and hide from Dent's jurisdiction. The Joker appears and offers to kill Batman for half of the mafia's money, but they flatly refuse and Gambol places a bounty on the Joker's head. Not long after, the Joker kills Gambol and takes control of his men.
In Hong Kong, Batman captures Lau and delivers him to the Gotham City police, where Lau agrees to testify against the mob. In retaliation, the mobsters hire the Joker to kill Batman and Lau. The Joker issues an ultimatum to Gotham: people will die each day until Batman reveals his identity. When Commissioner Gillian B. Loeb and Judge Surillo are murdered by corrupt police, the public readily blames Batman, prompting Bruce to decide to reveal his identity. Before Bruce can turn himself in, Dent holds a press conference to try and persuade the public not to sell Batman out just because of one terrorist, but the public, though grateful for everything Batman has done for the city, insists that things have now reached a point where Batman must make the sacrifice, so Dent announces that he himself is Batman and is arrested as part of a plan to draw the Joker out of hiding. The Joker attempts to ambush the police convoy carrying Dent, but Batman and Gordon intervene and capture him. In recognition of his actions, Gordon is appointed the new police commissioner.
Later that night, Dent and Dawes disappear. At the police station, Batman interrogates the Joker, who reveals that Dent and Dawes' police escorts were on Maroni's payroll and have placed them in warehouses rigged with explosives on opposite sides of the city — far enough apart so that Batman cannot save them both. Batman leaves to save Dawes, while Gordon and the police head after Dent. With the aid of a smuggled bomb, the Joker escapes police custody with Lau. Batman arrives, but finds Dent instead of Dawes. Batman successfully saves Dent, but the ensuing explosion disfigures Dent's face. Gordon arrives at Dawes' location too late, and she perishes when the bomb detonates. Unable to cope with this new level of chaos, Maroni goes to Gordon and offers him the Joker's location.
Aboard a cargo ship, the Joker burns Lau to death atop a pile of the mob's money, and has the Chechen killed before taking control of his men. Meanwhile, an accountant at Wayne Enterprises, Coleman Reese, finds out Batman's identity and after failing to blackmail the company, decides to go public. However, realizing that he does what he does only because of Batman, The Joker changes his mind about revealing Batman's identity and issues a public ultimatum: either Reese is killed, or he will blow up a hospital. When the police refuse to carry out his demands, The Joker goes to the evacuated hospital, disguised as a nurse, and frees Dent from his restraints, convincing him to exact revenge on the people responsible for Dawes' death, as well as Batman and Gordon for not saving her. Dent begins by flipping for the Joker's life, and spares him. The Joker destroys the hospital on his way out, and then escapes with a hijacked bus full of hospital patients.
Out of the hospital, Dent goes on a personal vendetta, confronting Maroni and the corrupt cops one by one. Now with complete control over the Gotham mob, the Joker announces to the public that anyone left in Gotham at nightfall will be subject to his rule. With the bridges and tunnels out of the city closed due to a bomb threat by the Joker, authorities begin evacuating people by ferry. The Joker has explosives placed on two of the ferries—one ferry with convicts, who were evacuated in an effort to keep the Joker from freeing them, and the other with civilians—telling the passengers the only way to save themselves is to trigger the explosives on the other ferry; otherwise, he will destroy both at midnight. Batman locates the Joker and the hostages he has taken. Realizing the Joker has disguised the hostages as his own men, Batman is forced to attack both Gordon's SWAT team and the Joker's henchmen in order to save the real hostages.
The Joker's plan to destroy the ferries fails after the passengers on both decide not to destroy each other. Batman finds the Joker, and after a brief fight, is able to subdue him, preventing him from destroying both ferries. When Batman refuses to kill the Joker, the Joker acknowledges that Batman is truly incorruptible, but that Dent was not, and that he has unleashed Dent upon the city. Leaving the Joker for the SWAT team, Batman searches for Dent. At the remains of the building where Dawes died, Batman finds Dent holding Gordon and his family at gunpoint. Dent judges the innocence of Batman, himself, and Gordon's son through three coin tosses. As the result of the first two flips, he shoots Batman and spares himself. Before Dent can determine the boy's fate, Batman, who’s body armor blocked most of the damage, tackles him over the side of the building. Gordon's son is saved, but Dent and Batman fall to the ground below resulting in Dent's death. Knowing that the citizens of Gotham will lose hope and all morale if Dent's rampage goes public, Batman convinces Gordon to hold him responsible for the murders. Police swarm the building, and Batman flees as Gordon and his son watch as Batman manages to escape the Police. Later Gordon is shown delivering the eulogy at Dent's funeral and smashing the Bat-Signal.