As Frank Drebin (Leslie Nielsen) adjusts to life away from the Police Squad, he becomes increasingly disillusioned with the mundanity of domestic life and struggles to maintain a connection with his wife, Jane Spencer Drebin. After six long months in counseling, Frank's unease becomes evident when he's approached by his old friends, Ed Hocken and Nordberg (Alan North and George Wyner), who need his help to investigate a dangerous plot orchestrated by the infamous bomber Rocco Dillon—now behind bars, but still exerting his influence.
His memories of Tanya Peters, Rocco's old flame and a figure from his Police Squad days, reignite Frank's resolve to support Ed and Nordberg in their investigation. However, a visit to Tanya's clinic yields little more than a misplaced handkerchief with her address, which Frank had meant to give to Ed. Meanwhile, Jane arrives home, finding Frank drained and exhausted, which leads her to suspect he might still be involved in police work. Trying to divert her concerns, Frank fabricates a story about an affair, unintentionally convincing Jane that she needs to distance herself from him, prompting her to pack her bags and leave.
With nowhere else to turn, Frank volunteers for a dangerous undercover mission: infiltrating Rocco's prison under the alias Nick "The Slasher" McGurk. He gains Rocco's confidence by sabotaging an escape plan and inciting a riot, which allows them to escape through a tunnel. On the outside, Rocco's mother, Muriel (Sharon Barr), welcomes them, but Frank faces the daunting task of extracting information about Rocco's bombing scheme from the wary pair.
As the events unfold, Jane decides to take a road trip with her friend Louise. The plot thickens when Jane finds the handkerchief bearing Tanya's address, leading her to believe that Frank's story about an affair might actually be true. Determined to confront him, she makes her way to Tanya's home, only to stumble upon Frank in the midst of his cover operation. Trying to maintain his disguise, Frank desperately spins a tale to keep Jane from uncovering the truth.
Amidst all this chaos, Rocco's malign intentions are finally revealed: he plans to detonate a bomb concealed within the Best Picture envelope during the Academy Awards ceremony. Seizing the moment, Frank slips into the event alongside Jane, eager to unearth the dangerous plot in action. As the ceremony reaches its peak, Frank's signature unpredictability leads to a series of comical yet frantic endeavors to locate the deadly device. The search takes them backstage where Frank encounters Tanya, who tries to distract him with her allure, but this is short-lived as a rather inappropriate decor item triggers a hasty retreat.
Refusing to back down from stopping Rocco, Frank makes a theatrical comeback on stage, ready to thwart the villain's plans. A tense showdown culminates in Frank's unconventional yet brilliant use of an electronic sign, which inadvertently takes out Muriel and sets the scene for a heart-stopping finale. As Rocco opts for a sacrificial end alongside his mother, Frank employs his quick wit and agility, ensnaring Rocco in a cable and sending him flying through the arena’s ceiling, where he meets his doom alongside the bomb.
With the ceremony back on track and the threat neutralized, Frank and Jane bask in the adoration of their fans, their love stronger than ever. Fast forward nine months, and Frank, along with Nordberg, rushes into a delivery room, only to mistakenly enter an adjacent room filled with unexpected surprises. Amid shock and hilarity, Frank's indignation is short-lived when he sees Jane entering with their biological child, solidifying their family unit amidst the chaos.
