Japanese martial artist Ryu, Koujiro Shimizu, and Muay Thai champion Sagat, Shigezo Sasaoka, clash in a brutal duel that leaves Sagat scarred across the chest by Ryu’s Shoryuken. Enraged, Sagat charges again, but Ryu defeats him with a Hadouken, and Sagat swears revenge.
Years later, following the assassination of a Justice Minister by Cammy White, Miki Fujitani, Interpol agent Chun-Li Miki Fujitani proposes joining forces with the United States Military to take down the enigmatic crime syndicate Shadowlaw. Captain Guile, Masane Tsukayama, who seeks revenge against Shadowlaw’s leader, Takeshi Kusaka M. Bison, initially refuses but relents after Chun-Li explains that Bison killed her father years earlier and that she too seeks justice, but understands that her duty comes first. At Shadowlaw’s base, Bison orders a worldwide manhunt for Ryu and dispatches monitor cyborgs to recruit more formidable martial artists for their cause. Yet Ryu, traveling the world to seek worthy challengers like Fei-Long, Dhalsim, and Edmond Honda, remains Undetected, as he suppresses his Ki.
Meanwhile, Ryu’s American best friend and fighting rival, Ken Masters, has settled down with his girlfriend Eliza, Hiromi Tsuru, but still craves a challenge and a rematch with Ryu. During a fight with Thunderhawk, Shozo Iizuka T. Hawk, a monitor cyborg records Ken’s prowess and transmits the footage to Shadowlaw. After seeing the footage and learning of Ken’s history with Ryu, Bison decides to hunt him down and hypnotize him instead. Along the way, Bison spots Chun-Li and Guile warning DeeJay about the monitor cyborgs, and he sends Vega, Kaneto Shiozawa, to New York to kill Chun-Li. Vega ambushes Chun-Li in her high-rise apartment, but after a long fight, she defeats him—though she slips into a coma from her injuries. Guile rushes her to the hospital while learning from Interpol about Ryu and Ken. After discovering that Bison has captured Ken, Guile races to Thailand to warn Ryu, who is training in the mountains with Edmond Honda, Daisuke Gori.
Bison, however, follows Guile and confronts them. He sets the hypnotized Ken on Ryu, who initially refuses to fight back. Honda battles Balrog, while Guile faces Bison and is severely beaten, though Bison spares his life as an insult. As Ryu prepares to retaliate against Ken, memories of their past enable him to break free from Bison’s mind control. The enraged Bison unleashes his Psycho Power upon Ken before turning his attention to Ryu, who fights him with very little success. Ken uses his master’s Ki teachings to mend his body and joins the fight. Together, Ryu and Ken defeat Bison, apparently destroying him. Honda defeats Balrog and rescues Guile. Shortly afterward, the United States Military locates and destroys the entrance to Shadowlaw’s base, presumably arresting all of Bison’s subordinates and bringing Shadowlaw down.
Chun-Li recovers and reunites with Guile in the hospital, informing him that their mission was a success. Elsewhere, Ryu and Ken part ways once more and Ryu begins his journey anew. However, he is ambushed by a truck whose driver is revealed to be Bison, who survived the battle. Ryu leaps toward the truck to fight Bison again.
