In this installment of the Lethal Weapon series, Lorna Cole is pregnant with LAPD sergeant Martin Riggs' baby; they are not married, but both are thinking about it and have misgivings and fears. Police sergeant Roger Murtaugh's daughter Rianne is also pregnant and has secretly married Lee Butters (played by Chris Rock), a young detective who works at the same precinct as Murtaugh and Riggs, though she cannot tell her father because he does not want her to date any cops. Throughout the film, Butters seems to take an unusually friendly interest in Murtaugh, who fears Butters is romantically interested in him. Aware of this, Riggs uses it as a prank by heightening Murtaugh's fear about Butters, who in reality, is trying to get on his father-in-law's good side.

The opening scene is an unrelated sequence in which Riggs and Murtaugh confront a lunatic wearing a flame-retardant armored suit and wielding an assault rifle and a flamethrower. The unidentified man is destroying cars and shops along a city street. Aside from some comedic value and a reminder to the audience of Riggs' marksmanship skills, the scene mainly serves to show the two partners informing each other of Lorna's and Rianne's pregnancies. After this scene, a title card shifts the story to "almost nine months later."

The rest of the movie revolves around Riggs, Murtaugh, and Butters' - with some assistance from Leo Getz (Pesci), who is now a private detective - investigation of a Chinese immigrant smuggling ring, which begins after a vessel is captured with a cargo hold of slave labor. Right afterwards, Murtaugh finds a small dinghy alongside with an entire Chinese family, whom he "rescues" and provides shelter for at his house, claiming to be "freeing slaves."

Information about a crime boss named Benny Chan (Kim Chan), known as Uncle Benny, then leads them to Chinatown, where they are introduced to their new arch-nemesis, a high-ranking Triad negotiator named Wah Sing Ku (played by Jet Li). Ku is organizing the release from prison of four Triad overlords, called the Four Fathers. They are being held by a corrupt Chinese general who demands a huge payoff in exchange for their freedom, but Uncle Benny and Ku plan to give him only counterfeit cash. The captive artist working on the printing plates for the scam is the elder uncle to Hong, the father of the Chinese family Murtaugh has rescued; he agreed to do this job in exchange for his family's safe passage.

Riggs and Murtaugh decide to hire Leo to follow Uncle Benny around, but the Triad feels they are getting too close and decides to strike back. After Hong contacts his uncle, Riggs and Murtaugh come home to find Ku and other gang members holding Lorna and Murtaugh's family hostage; Hong and his family were already taken away. After a brief fight in which Ku reveals his impressive martial arts abilities (he manages to disassemble Riggs' gun with one quick move), the entire family is tied up and the house is set on fire with everyone inside, including both pregnant women. Ping, the youngest of the Hong children, manages to escape and frees them just in time to break out through the living room window. Ku brings Hong to see his uncle, then kills him in order to get the old man to cooperate.

Taking Lorna's car radio, Riggs and Murtaugh set off in Rianne's car to chase down the Triad men. The pursuit leads to a fight between Riggs and one of the thugs in a mobile home being hauled down the freeway; both the thug and his partner are ultimately killed in collisions with traffic, but neither one gives up any information on the Hongs' whereabouts. Leo informs them that Uncle Benny has gone to see his dentist, and while using Leo as a distraction to keep the dentist busy, Riggs, Murtaugh and Butters use nitrous oxide to extract information from him. Here Riggs inadvertently reveals that Butters is Rianne's husband and the father of her baby, but the effects of the laughing gas keep Murtaugh from getting angry at the time. Uncle Benny mentions the Four Fathers, which the detectives mis-hear as "forefathers"; another detective who knows about Chinese society later corrects them on this point and helps them piece the entire operation together. Both Benny and Hong's uncle are killed once the printing plates are complete: the former for his indiscretion, the latter to keep him from revealing the forgery.

Arriving at the meeting between Ku and the corrupt general, Riggs, Murtaugh, Butters and several other detectives expose the money that is being used to buy the Four Fathers' release as counterfeit; as a result, the general personally executes three of the Four Fathers. Ku shoots and kills the general, and a firefight breaks out between the cops, the Triads, and the general's private army in the foreign trade zone down by the docks. During the fight, Murtaugh kills the last of the Four Fathers, Ku's brother, while aiming for Ku, and Butters is injured while protecting Murtaugh. The climactic scene takes place on a pier where Ku faces off against the unarmed Riggs and Murtaugh. A brutal fight erupts, with both Riggs and Murtaugh truly outmatched by the whirlwind Ku. Eventually, Murtaugh is knocked out but not before impaling Ku with a rebar. Riggs and Ku fall into the water as the concrete pier begins to collapse. Riggs struggles with Ku underwater and shoots him to death, but a slab of concrete from the pier pins him underwater until Murtaugh swims down to save him.

A heavily bandaged Riggs visits his former wife's grave and apologizes for not having come by in a while. He is interrupted by the arrival of Leo, who tells a tearful story from his childhood that makes Riggs see the idea of remarrying in a new light. At this point, Riggs' pager goes off, indicating that Lorna is about to give birth, and he and Leo rush to the hospital. Riggs and Lorna are married by a rabbi just before both their baby and Rianne's are born, and Murtaugh finally accepts Rianne's marriage to Butters. The Hongs are granted political asylum in the United States, protecting them from being deported back to China. The end credits feature the song "Why Can't We Be Friends?" by War, along with a collage of screen shots and snapshots taken during production from all four movies in the series.