Sarah is on a beach in Oahu, Hawaii morning her father by drinking. She heads to a local bar and her phones rings, it is Mike, she ignores the call and orders another drink. A man at the bar hits on Sarah, when she states she is not interested, he persists. Sarah asks the bartender to get the bouncers, a bag of ice & a cab and with one punch, the man hits the floor. As the bouncers are carrying the man away, Mike walks in and comments that she can take care of herself. Sarah brushes him off, leaving him standing in the bar. He follows her to the beach. They discuss that she disappeared after her father's service and has been ignoring his calls. Sarah gets upset when Mike comments about her drinking. She then grabs Mike and kisses him, stating that she does not want to be alone tonight. Mike kisses Sarah back.
Billy is at the SSC, hiding while the NSA, Torres and a man named Jack Hurst are shutting them down and cleaning it out. Despite KITT's protest, Torres orders that KITT's AI chip be removed. Their plan is to put KITT's chip into KARR and reactivate KARR. Once KITT's chip is removed, the empty hull is towed away.
Billy finally gets through to Mike, noting that he had to call from a payphone, as they confiscated his cell phone. Billy tells them that Torres betrayed them, explaining that they shut down the SSC and took KITT's chip. He also states that he had found a package in Graiman's office with Mike and Sarah's names on it. He asks Mike if he has the package, which he does. Mike tells Billy to find Zoe and he will get back with him. Mike opens the package finding a small black cube. Mike tells Sarah what has happened and she heads off to the beach. Mike punches in a code and the cube projects a 3-D hologram of Dr. Graiman. He states that since they are seeing this, he must be dead and there are things he feels Mike has a right to know. First, he tells him that he was the original driver on the KARR project. Charles explains that KARR had a flaw in his programming and this made him aggressive and uncontrollable. KARR reprogrammed himself, causing the deaths of many people. Mike has flashes of people dying. Charles continues stating the program was halted and Mike's memory was wiped. Charles tells Mike that he loves him like a son and he needs to take care of Sarah. He must stop them from re-starting the KARR project and he is sure that with his death, they will rush into it. He begs Mike to stop KARR. Mike finds Sarah on the beach and explains the situation, but she does not care. Mike leaves her there and goes to meet Billy and Zoe.
Mike finds Billy and Zoe in Los Angeles and they tell him that they are afraid to go home. Mike wonders if KITT would have had time to leave them a message or a clue. Billy finds that just prior to his shut down, KITT logged onto to a site where their share music. KITT accessed the song Absurd by Fluke. They search the song to find and hidden message and find a trail leading them to the website, www.michaelknight.org. Billy and Zoe determine that KITT scattered his program all over the web at random locations. There is a program at the www.michaelknight.org site, which will upload KITT's program, but they need more computing power. They realize that the SSC has the available power and should be abandoned. Mike finds a way in to the old SSC. They turn on the back-up generators, hoping to avoid detection, as Billy and Zoe work together to build a new AI chip for KITT.
Back on the beach, Sarah types in a different code, which activates a holographic message from her dad. He asks her to help Mike to stop the exploitation of KITT. He explains that she is the only person he trusts to take over his life's work. He tells her that all the answers she needs can be found at his desk. The hologram ends and Sarah cries.
Hurst informs Torres that the DOD is having some doubts and are against committing funds to KARR without a hard look. Torres promised that KARR will be operational in 24 hours.
Back in Hawaii, Sarah searches her father's desk and finds a riddle. She calls Mike and together they come up with the answer. This leads her to a secret drawer with a code. Sarah enters the code into her father's computer, enabling a program, which begins transferring money into an account in her name. She watches in amazement as hundreds of millions of dollars appear in the account.
Billy and Zoe have pieces together an AI chip for KITT, only to find that there is a missing file. Billy searches and finds that the files were accidently uploaded into an 11-year-old's X-Box. They track the files to Cody Lundstrom who lives in Portland, Oregon. Zoe and Mike send Billy there to retrieve the file. He shows up at Cody's door with several beta versions of X-box games stating Cody is being honored by a gamer's magazine. Cody and Billy play several games on the X-box, until Billy is able to find the missing file. He leaves and heads back to the SSC.
Meanwhile Zoe has hacked into the mainframe, finding surveillance data of Torres and a man meeting three days before the raid. Mike asks Zoe to run facial recognition the man just as Sarah walks up and identifies him as Jack Hurst. Mike and Sarah believe he will know where KITT's shell is and head of f to find him. Mike shares with Sarah the pieces of his past in regards to KARR and the wiping of his memory.
Zoe using, her computer skills, is able to find out where Hurst is having dinner. Sarah arranges to bump into him at the restaurant and puts a bug on him. Mike and Sarah follow Hurst home, listening in as he calls Torres. He believes that it was not a coincidence that Sarah is in Washington and orders that they tie up all the loose ends. Mike breaks into Hurst's house and is surprised that Hurst is waiting for him with a gun. Just then, Sarah sneaks up behind Hurst with her own gun. Hurst tells them that KITT is being stored in Nevada at the old Area 51. Hurst threatens Mike and Sarah they will die.
Back at the SSC, Mike and the group plan their attack and Mike wants non-lethal options, since the area is guarded by US soldiers. Billy takes them to a secret stash of non-lethal weaponry and then hands over KITT's rebuilt AI chip. He warns Mike that if the sequence isn't exactly right, it won't work.
Mike heads off to Nevada to rescue KITT and Sarah, Billy and Zoe keep watch via a commercial satellite system that they hacked into. Mike disables an electric fence and gains accesses to Area 51. He strategically leaves several mines in key areas. As he finds KITT, Mike sets off the mines and runs into little resistance from a few guards.
Billy directs Mike to a large crate, which contains KITT. Mike opens the crate to reveal an inactive KITT; he climbs inside and plugs in the AI chip. They drive off. Torres is notified of KITT's escape, while in KARR's presence. KARR is determined to destroy KITT and refuses to follow Torres order to stand down. KARR grabs Torres putting him into the cockpit where he attaches Torres to his being, calling them one. KARR morphs into a car and drives off intent on finding KITT.
As they head home, KITT tells Mike that he is unable to access his weapons or transformation protocols until his download is complete. Sarah informs them that KARR is in pursuit and she wants them to head back to the SSC, immediately. Mike states that this is their only chance to finish KARR permanently. He turns KITT around and when KITT objects, he states, "Suck it up".
As Mike and KITT approach, KARR is back into his robotic form and flings KITT with his arms. They continue to fight, with KITT taking a beating. Mike uses KITT's grappling hook to attach to KARR and then tear off his front panel, revealing Torres. Torres is ejected from KARR and Mike uses the turbo boost into the center of KARR. KARR explodes and KITT exits the explosion, intact but damaged. Mike runs to Torres, yelling for Sarah to call an ambulance. Torres looks up at Mike, apologizes for re-activating KARR, and then takes his final breath.
Back at the SSC, Sarah cares for Mike by tending his wounds, as Billy and Zoe activate KITT's self-healing sequence. KITT reports that he feels better, but he is sure something is missing. KITT finds a message from Dr. Graiman in his systems and plays the hologram. Charles congratulates the team on their success against KARR. He explains that everything, the SSC, KITT, all of it, belongs to Knight Foundation and in turn to Sarah. He states that they can reinstate FLAG (Foundation for Law and Government) and they will be autonomous, with no hidden agendas and no government interference, just as Wilton Knight envisioned.