It's another fine day in Gotham City, the air is clear enough to see a small helicopter zipping around the city skyline. Uh-oh, what's this? It looks like one of the passengers is wielding a machine gun. I don't think this happy day is going to last for long. We arrive at Gotham Towers, in time for the end of a Charity Book Signing to save the local Gotham University, which is undergoing some difficulties due to a string of robberies and vandalism. Doctor Long packs his briefcase and prepares to leave the signing when a reporter for Gotham Insider, Summer Gleeson catches up with him to ask if he knows why someone would want to destroy the university. Dr. Long admits that he doesn't, and also predicts, "one more disaster, and students will be afraid to set foot on this campus." As they board the elevator, Bruce Wayne joins them.
We flash back to the helicopter, where a henchman is loading his tommy gun. Beside him is the newest of Batman's costumed foes, but we'll save his introduction for later. We return to the Gotham Towers elevator, where Summer introduces Dr. Long to Bruce. The doctor looks at Bruce's outstretched hand with great disapproval, and he Bruce and Dr. Long discuss about Bruce's deceased father. Whilst Bruce assures Long that he would have been at least pleased that Wayne Enterprise had made great profits, Dr. Long huffs in disagreement. He states that he believes that Bruce has only downgraded his family's name of 'Wayne' by acting like nothing more than a "self-centered, jet-setting playboy," and that it's a good thing his dad hadn't seen what Bruce had so far accomplished, or else he probably would "have died of shame." and leaves. Summer chases after him, trying to finish her interview, and assures Bruce that Dr. Long is "probably just venting his anger over what's happening to the university." Bruce doesn't say anything, but it looks like Long's remarks have struck a nerve and is inwardly troubled. He knows that his cavalier attitude is just a facade to disguise his identity as The Batman, but he must wonder what his dad would think of him. As he ponders this, the helicopter flies past the elevator and heads to the University Bank.
The villains blows open the roof of the bank, startling a guard from his light reading of a Tiny Toon Adventures comic book. Two henchmen clamber down into the bank, followed by a thin man dressed like a scarecrow. The guard triggers the silent alarm and then rushes out to stop the robbery. The Scarecrow is unimpressed, and raises his hand towards the guard. A red gas issues out from the hand, and the guard suddenly reacts as if spiders are crawling all over him. One of Scarecrow's henchman asked what just happened, and the Scarecrow explains that he "merely helped him visualize his innermost terror." As they make their way towards the vault, we see that Batman is on his way to the scene. Scarecrow places one of his henchmen on guard outside the vault. Inside, his other henchman starts picking up cash, but Scarecrow tells him to take only what he can and then to burn the rest. After all, this "isn't about the money; it's about revenge!" As Scarecrow starts pouring gas out, however, the other henchman suddenly shouts out a warning that Batman's arrived. Scarecrow orders the henchman with him to get out of sight and wait for a signal. Scarecrow tosses two blue capsules onto the floor, where they burst into more of the red gas. Batman walks right into the trap, but he's wearing a gas mask. Scarecrow is impressed by Batman's resourcefulness, but he quickly lets Batman know that he's the new bad guy in town. "I am fear incarnate. I am the terror of Gotham. I am the Scarecrow!" He lights a flare, prepared to set the money ablaze, forcing Batman to step deeper into the vault. Scarecrow's second henchman leaps down from his hiding spot and grabs Batman. They wrestle for a moment, and Scarecrow takes advantage of the distraction to shoot a toxin-filled dart into Batman's neck. Batman staggers forward and rams into Scarecrow, tearing a piece from of the villain's mask as he slides to the floor. Scarecrow's very interested in Batman's reaction, and would like to know "what hidden terror keeps the Batman awake at night?" However, Batman's also knocked the flare from Scarecrow's hand, so they're in the middle of a blazing inferno inside the vault. Scarecrow and his henchmen leave. Batman tries to follow, but collapses before he can reach the vault's exit. The flames suddenly transform into his father's head, which tells him that he has indeed failed, just like Dr. Long predicted, and that "[he's] disgraced the family name." Batman hangs his head in defeat.
The fire sprinklers finally come on, dousing the flames and relieving Batman of this haunting vision. The police and Detective Bullock show up as Batman staggers out of the vault. Bullock is suspicious that "the Commissioner's pet bat" let this new villain get away so easily, and then notices that Batman is holding onto the piece from the Scarecrow's mask. He tries to take it, but Batman shoves him away. Bullock reaches for his gun, but is interrupted by the arrival of Commissioner Gordon. Before Bullock can explain what's been going on, he realizes that Batman's vanished.
At the Scarecrow's hideout, Scarecrow explains to his henchmen that the university tried to destroy him when he was a professor of psychology at Gotham University. Apparently, Dr. Long didn't like some of the radical experiments that Scarecrow, formerly Professor Crane, was conducting at the university, since it mostly involved scaring the daylights out of people. They threw him out of the university, and so the Scarecrow has sworn revenge. His henchmen are impressed that he was a real professor, and we see from the newspaper they're reading that there's a University Museum benefit taking place that night. Hmm, I wonder where the Scarecrow will strike next?
Batman received the same paper, but he's more interested in the computer analysis of the Scarecrow's mask. It doesn't look like Bruce has gotten much sleep since his encounter with the Scarecrow, and he still hears his father's voice, calling him a failure. While the computer works on the mask, Bruce tunes into the Gotham News in time to catch Summer's report about the arson. In his drugged mind, he imagines that Summer is repeatedly calling Batman a failure for not catching the perpetrators of the arson. Alfred arrives and snaps Batman out of his trance. When asked, Bruce admits that he's "having horrible visions of [his] father," and that, "he's says I'm shaming the family name." Alfred says, "That's rubbish. I know your father would be proud of you, because I'm so proud of you." His confidence bolstered, Batman prepares to face down the Scarecrow again.
It looks like the benefit is already underway at the museum, but it doesn't take long for this scene to dissolve into the regular Gotham mayhem. Someone notices that there's a green-tinged gas coming out of the vents and Scarecrow's henchmen come swarming in to surround Dr. Long, who's holding the cash box for the benefit. Dr. Long doesn't seem to have been affected like the other party-goers, and tries to stop Scarecrow from taking the box. Scarecrow sprays him in the face with his red gas, and Dr. Long sees his hands as skeletal, as if he's already dead. Scarecrow orders his henchmen to pick up Dr. Long so they can leave, but he takes a moment to watch everyone in the room freaking out with the effects of his gas. As he turns to join his henchmen, Batman's Bat-a-rang lasso grabs his foot, causing him to trip up. Scarecrow's not worried, because he knows that Batman's still affected by his time-release fear toxin, and also because everyone at the benefit is about to attack him. They may be scared to death of the giant bat that's appeared, but at least they can hurt Batman, unlike the visions Scarecrow's gas is making them see. Batman is soon swarmed by the mob, and Scarecrow is able to get away. Batman throws everyone off him and then grapples his way up the stairs in time to see Scarecrow's blimp soaring up into the sky. The henchmen forgot to detach the hose that's pumping gas into the museum, however, and as it breaks loose from the vent, Batman jumps onto it and climbs towards the blimp.
Scarecrow is celebrating his victory over the University and Batman, but one of his henchmen notices that Batman's heading towards them. Scarecrow orders him outside to kill Batman. Batman tries to disarm the henchmen, but as they're wrestling for control of the tommy gun, the gun fires through the top of the blimp and into the blimp's control panel, which bursts into flames. The blimp, out of control, veers into the side of a skyscraper, throwing Batman and the henchman over the edge. Batman uses his grapple to swing back towards the blimp, and Scarecrow's henchman drops onto an awning far below. Back on the blimp, Scarecrow's remaining henchman is getting worried that Batman refuses to give up, but Scarecrow is confident that his fear toxin will wear Batman down. It looks like he might be right, because as Batman reaches the front of the blimp, he suddenly starts feeling dizzy, and a ghostly image of his father appears before him. Batman won't give in this time. "You are not my father. I am not a disgrace. I am vengeance. I am the night. I am BATMAN!" The vision disappears, and Batman swings down and into the cockpit. Scarecrow's remaining henchman leaps onto Batman, and Scarecrow tries to shoot him with another fear toxin dart. Batman whirls around and the dart strikes the henchman in the back. He immediately succumbs to his fear, which is being back in prison with the walls closing in on him. The henchman throws himself out the cockpit window trying to escape the vision. Batman turns to face the Scarecrow, but the villain has boarded a small glider which detaches from the blimp and sails away. Batman retrieves Dr. Long and leaps to safety as the blimp crashes into a building and explodes.
Batman gets back in the Batmobile, and discovers that his computer has analyzed the material in Scarecrow's mask. He quickly discovers that the only person who had access to this material and also had a past with Gotham University is Jonathan Crane, owner and operator of Crane Chemicals. Batman races to the Scarecrow's hideout. When Scarecrow returns to the chemical factory, he notices that two of his fear toxin tanks are leaking gas into the room. He runs over to turn them off, and breathes in a healthy dosage of gas in the process. The lights shut off, and Crane starts to panic, seeing a ghostly image of a bat flapping around his factory. He tries to run away, and runs right into Batman, who appears like a giant gargoyle to Crane's poisoned mind. Crane tries to get away, but there's no escape this time from the vengeance of Batman.
At police headquarters, Bullock is trying to convince Gordon that Batman and Scarecrow are working together, and is even willing to bet his badge on that statement. Gordon is very agreeable to this, since Batman's left an unconscious Crane tied to his office ceiling fan. We flash to the cemetery, where Bruce Wayne stands over his parent's grave, leaving two red roses in memory of them. As he walks away, his shadow forms the distinctive silhouette of The Batman.