Inspector Chan Ka Kui has faced the setbacks of being demoted to highway patrol following his handling of a controversial case involving the brutal arrest of crime lord Chu Tao from the prior film, Police Story. This situation has left a significant mark on his career, as the aftermath included the destruction of a squatter village and a mall, resulting in substantial losses for the government due to the necessary reconstruction and compensation for affected mall owners.
Moreover, his current assignment raises concerns for his girlfriend, May, who is relieved that Chan is no longer embroiled in perilous cases and can spare more time for their relationship. However, their happiness is short-lived when [Chu Tao], along with his conniving lackey John Ko, greets Chan with hostility. It turns out that Chu Tao has been unjustly released from prison, armed with a false medical certificate claiming he has mere months to live, thus intensifying his vendetta against Chan.
The tension escalates when John Ko and his henchmen confront Chan at his apartment, challenging him to a fight. In a turn of events, when May and her aunt suffer violence at the hands of Ko's gang, Chan snaps and retaliates in a restaurant brawl. This leads to a moment of disillusionment such that Chan resigns from the Royal Hong Kong Police Force, planning a serene getaway to Bali with May. However, fate intervenes when he’s asked to respond to a bomb threat at the mall while at a travel agency. Ignoring his instincts to stay away from police work, he insists on leading the evacuation, resulting in a devastating explosion that levels the entire mall.
In the aftermath, mall owner President Fung receives a bomb threat demanding a $10 million ransom under dire warnings of further destruction. With this urgency pulling him back into active duty, Chan is reinstated, which leads to a mixed blessing as he’s forced to abandon their trip to Bali, taking May’s passport in the process, and leaving her behind as he dives into solving the bombing case.
Determined to unravel the mystery, Chan suspects that the explosives were either smuggled or linked to some construction activities, prompting him to plant a listening device in the office of the mall’s parent company to gather intelligence on the criminals. Meanwhile, May reenters Hong Kong, having been delayed in Indonesia, and feeling betrayed, ends her relationship with Chan.
As the narrative unfolds, Chan’s pursuit of justice is thwarted by [John Ko]'s ambush, but his resilience shines through as he fends off the attackers. Their relationship takes a turn when May realizes Chan saved her from danger, leading to their reconciliation.
As Chan traces leads connected to the bombing, his investigation points toward a man named Cheung, who admits to selling explosives, which introduces him to another suspect, a deaf-mute martial artist known as Dummy. The stakes balloon when the bombing gang escalates their demands and kidnaps May, setting the stage for a dramatic confrontation.
Chan, faced with being strapped into an explosive vest, cleverly evades disaster and manages to save May from her captors in a warehouse exploding with fireworks. In a fierce showdown with Dummy, Chan unleashes a power that ultimately sees him triumph over his foes, culminating in a breathtaking escape from the flaming wreckage.
