In the vast expanse of a parking garage, Commandant Mauser and Captain Proctor assemble with Sgts. Chad Copeland (Scott Thomson) and Kyle Blankes (Brant van Hoffman) from the ranks of the esteemed police academy led by Commandant Lassard. The situation is dire as the state government threatens to close one of the two academies due to budget cuts, and Mauser is relentless in his pursuit to ensure Lassard's failure. He cunningly persuades Copeland and Blankes to ally with him, fueled by their grudge for being graduated at the bottom of their class.
The next day, the governor (Ed Nelson) reveals plans to form a committee to assess which academy will stay open. Mauser attempts a suave charm offensive; however, he finds himself outsmarted when Sgt. Jones cleverly embarrasses him in front of the governor. Utilizing his strategic acumen, Commandant Lassard regains control of the narrative, rallying his trusted team which includes Sgt. Jones and Lt. Callahan. They call upon experienced officers like Mahoney, Hooks, Hightower, and Tackleberry to whip the new recruits into fighting shape.
Among these new recruits is Sgt. Fackler's wife Violet (Debralee Scott), whom he is totally against joining the force. Additionally, we meet Sweetchuck (Tim Kazurinsky) and Zed (Bobcat Goldthwait), whose past tensions linger as Zed harasses Sweetchuck, a humble shop owner. Karen Adams (Shawn Weatherly), a stunning new recruit, captures Mahoney's heart, but she turns him down. It's also worth noting that Tomoko Nogata (Brian Tochi), initially part of Mauser's team, is transferred to Lassard's academy in what appears to be a tactic to undermine Lassard's leadership.
As the weeks go by, Nogata develops feelings for Callahan, while Sweetchuck grapples with his roommate Zed, leading him to consider dropping out. Luckily, Tackleberry steps in as a mentor to Sweetchuck. Meanwhile, Copeland and Blankes work to sabotage the new recruits' initial training efforts, which prompts Mauser and Proctor to mock their failures. In a comical revenge ploy, Mahoney tapes Mauser's eyes shut during a taste test, and Proctor inadvertently makes matters worse by removing the tape and pulling off Mauser's eyebrows, leaving him utterly humiliated.
As the cadets of Police Academy gear up for their training, Commandant Lassard and Sergeant Mahoney gather the troops for an inspiring pep talk. This unexpected encouragement ignites a spark in Adam, who starts to warm to Mahoney’s quirky teaching style. Later at the police officers' ball, Mahoney reunites with an old acquaintance, a prostitute (Georgina Spelvin), leading to a crafty plan that leaves Proctor feeling red-faced.
The night takes a sharp turn when Mauser, in his usual antagonistic fashion, belittles Lassard in front of the recruits. Seizing an opening, Mahoney takes to the mic for an impromptu speech, delivering an unexpected revelation that catches Mauser and the audience off guard. As the competition escalates, Proctor’s misunderstanding leads to a comedic intersection at the governor's ball, with one recruit from each academy showing up unwittingly.
Tension mounts as Copeland and Blankes attempt to breach the computer system, only to be thwarted by Hooks' quick thinking. Complicating matters further, a band of thieves disguised as busboys disrupt the event, taking the governor hostage. Mauser's academy falters, but Lassard’s team, led by Hedges (David Huband), quickly intervenes. With teamwork and valor, they save the governor from the clutches of the thieves, leading to a triumph for his academy.
In the aftermath, Mauser's academy faces closure due to its inability to cope with the crisis, while Lassard's academy continues to flourish. In a closing moment of heartfelt appreciation, Lassard expresses his gratitude toward the "many, many" recruits who have come through the doors. The film concludes with the graduating class gathering together, saluting the camera, celebrating their camaraderie and victory amidst the challenges they faced.
