There are several major players in the plot of the movie: Guile, Chun-Li, Ken and Ryu, Dhalsim, Cammy, Charlie (Blanka) and Bison. The plot described below follows primarily Guile.
The movie takes place in the fictional nation of Shadaloo in South East Asia (the movie was shot in Thailand, and maps at the beginning of the movie show Shadaloo occupying a segment of modern-day Burma). After months of fighting, a multinational military force of the Allied Nations has managed to enter the city of “Shadaloo City”. The Allied Nations is fighting against the armed forces of drug lord turned General M. Bison who has recently captured a couple of dozen AN workers. Bison makes his demands in a live two-way TV broadcast with William F. Guile, the regional commander of the AN forces. If he is not paid $20 billion in three days he will kill the hostages and the world will hold Guile and the AN accountable. One of the hostages, Carlos “Charlie” Blanka, an AN trooper and Guile's best friend, is used as a test subject for Bison's supersoldier experiment, conducted by a reluctant Dr. Dhalsim. Guile's assistant, Cammy, is only able to partially trace Bison's signal. From that it can be determined that Bison's hideout is somewhere in the river-delta region outside Shadaloo City.
Meanwhile, in an underground fighting arena, two con artists, Ryu and Ken, attempt to sell fake arms to Victor Sagat, the head of the Shadaloo Tong crime syndicate. Sagat discovers their plan and decides to kill them both by having them fight his fighting champion, Vega. Before the fight can begin, however, Guile's tank smashes into the arena and he places everyone under arrest for violating a curfew. After one of Sagat's thugs attempts to assassinate Guile, which Guile himself quickly foils, he figures out that Sagat is the arms-supplier for Bison.
Guile later sees Ryu and Ken fighting Sagat's men in the prison camp. Knowing that they might be Sagat's enemies, Guile attempts to infiltrate them into Sagat's gang. He decides to stage a prison-break and his own death in order to find out the location of Bison's hideout via a homing device carried by Ryu and Ken. Guile's plan hits a snag when a GNT News Reporter Chun-Li Xiang (spelled “Zang” in the film; played by Ming-Na), who is out for Bison's blood, finds out that Guile is alive and with the help of her partners, Sumo wrestler E. Honda and professional boxer Balrog, each of whom hold a grudge against Sagat for ruining their reputations, attempts to kill Bison and Sagat, with a truck bomb while they are engaged in arms trade at a thieves' camp. The explosion destroys much of Bison's arms cache but fails to kill the dictator. The plan thus fails (in part because Bison and Sagat are tipped off by Ryu and Ken), and Chun-Li and her friends are captured.
Ryu and Ken are welcomed as Bison troopers. Once in the fortress, they free Balrog and Honda, and the four of them go to “save” Chun-Li, who is fighting a surprised Bison in his private quarters. Unfortunately, the arrival of the others interrupts Chun-Li long enough for Bison to escape and trap the five of them in the room and turn on the gas system, which sedates them all.
Ryu and Ken's homing device is tracked by satellite, which also detects the explosion at Bison's camp, and the AN is able to locate Bison's headquarters in an abandoned temple. Since Bison's air defenses are too deadly, Guile orders an amphibious assault on the base. As the troops comprising the strike force stand in salute and are preparing to march out, a group of peace negotiators arrives to inform Guile that the invasion is no longer authorized, since the ransom demand is about to be paid. Guile protests what he sees as appeasement and decides to go ahead with the assault.
Meanwhile Guile, T. Hawk and Cammy head up river to lead the attack in a stealth-boat, which they use to blow up part of Bison's radar system. Bison notices the attack and manages to compromise the boat's stealth-mode, making Guile a perfect target. The boat is blown out of the water but Guile and his comrades escape in time. In the laboratory, Dhalsim is discovered by the lab guard to have been changing Charlie's cerebral programming to keep him from becoming a bloodthirsty monster. The guard tries to call security, but Dhalsim stops him and breaks the machinery. A fight ensues, in which the mutated Charlie, now calling himself “Blanka”, emerges and kills the guard, who was strangling Dhalsim.
Guile heads in to Bison's fort alone while T. Hawk and Cammy stay and wait for the rest of the attack-party. Guile falls in to the laboratory, where Blanka attacks him until recognising him as his friend. Guile almost kills Blanka to end his suffering, but Dhalsim intervenes and persuades Guile not to do so. After learning from Dhalsim that Bison attempts to use Blanka to execute the hostages, Guile hides in Blanka's incubation chamber and takes Bison by surprise. Unfortunately he is not able to prevent “red-alert” from going off and Cammy and T. Hawk end up in a tight spot. The attack party, led by Captain Sawada, is not far behind and the battle soon begins.
While some of the heroes try to free the hostages, Ken wants to leave the battle now that the military is there. Ryu disagrees and goes back in to fight, but as Ken is leaving, he sees the monitors of the cameras spread out through Bison's base. He sees Sagat and Vega trying to ambush Ryu, knowing of his alliance with Guile. Ken goes back in to help Ryu, and the two of them defeat Vega and Sagat after an intense fight. Meanwhile, Guile and Bison engage in a one-on-one fight. Guile seems to be winning, but then an automatic revival system brings Bison back to life and charges his body with great amounts of electromagnetism, allowing him to shoot lightning bolts and fly across the air. After taking a serious beating, Guile finally discovers Bison's weak point, and uses it to send him flying against his gigantic monitor wall, where he crashes and is hung by the neck. The damage causes severe electrical disturbances which destabilize the power system of the base. As the base sounds the alarm, the heroes find and release the hostages just in time, and everyone evacuates.
Guile finds the lab and tries to persuade Dhalsim and Blanka to escape with him now that Bison has been defeated, but Blanka refuses to return to society like this, and Dhalsim decides not to leave Blanka to die alone and to pay for his own part in having done this to him and not intervening sooner. When the temple comes crashing down after an explosion everyone thinks that Guile is dead, but then he appears from amongst the smoke.
The movie ends semi-humorously, after Guile converses with Chun-Li, Ryu, Ken, Cammy, Zangief, Balrog, E-Honda, T-Hawk and Sawada, they see the last ruins of the temple fall and take their familiar win poses as the camera freezes and fades out.
In the home video version of the film, at the end of the closing credits we find ourselves back at the ruins of M. Bison's lair, as the main computer announces that its batteries are recharging from solar power and it begins fibrillating Bison's heart with electricity. Bison's fist suddenly smashes through the rubble, and on a computer screen the resurrected dictator selects “World Domination: Replay.”
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