Before its release, the movie was heavily edited to remove scenes of extreme violence, and some dialogue was altered, thus creating the "Not-Rated" version of the movie. The original version was subsequently released on DVD following an online petition to have the original version released. It received a PG-13 rating from the MPAA for violence, the first animated Batman film and the first Warner Bros. Family Entertainment film to do so.
The movie premiered on Cartoon Network's Toonami block on August 9, 2002. The movie also aired on Toonami on two other occasions: March 19, 2004 and July 26, 2008.
In Gotham City, the Joker resurfaces after having disappeared 40 years earlier. He has taken over a faction of the Jokerz, and on his orders, they steal high-tech communications equipment. One heist happens to coincide with Bruce Wayne's formal announcement of his return to active leadership of Wayne Enterprises, revealing the Joker to the world. Despite Terry McGinnis' intervention, the Joker escapes. Bruce insists that Joker must be an impostor, as he claims to have witnessed the real Joker's death decades before, yet all evidence suggests otherwise. Bruce, unwilling to let Terry face the Joker, impostor or not, demands that he return the Batsuit, to which Terry reluctantly complies.
Later, Terry and his girlfriend Dana are attacked by the Jokerz at a nightclub. At the same time, the Joker ambushes and attacks Bruce in the Batcave, leaving him for dead. Terry defeats the Jokerz, and Dana is taken to the hospital for her injuries. Terry rushes to Wayne Manor, and finds Bruce near-dead from Joker venom. Terry quickly administers an antidote, and tends to Bruce with the help of Barbara Gordon.
After Terry insists on being let in on what really happened to the Joker, Barbara reluctantly tells him that many years back after Nightwing (Dick Grayson) moved to a new city to fight crime on his own, the Joker and Harley Quinn kidnapped Tim Drake, the second Robin, and disfigured him to look like the Joker, and tortured him to the point of insanity over a period of three weeks. In the process, Tim revealed Batman's secret identity—and the secret of what drives him to be Batman. When Batman and the Joker fought their final battle, the Joker got the upper hand and subdued him. The Joker then tried to persuade Tim to kill Batman. Instead, the boy, due to a trace of Robin still active, turned on the Joker and killed him,(whether he shot him or electrocuted him, is ambiguous in the comic book, due to hasty last-minute revision) and suffers a mental breakdown in the process. Batman and Barbara buried the Joker's body deep beneath Arkham Asylum, while Harley fell into a pit after she was fighting Batgirl and was presumed dead as her body was never found. The only other person who knew about what happened that night was Barbara's father, Commissioner James Gordon, who promised to keep that night a secret. One year after the incident, Tim was rehabilitated, but Bruce forbade him from being Robin again, blaming himself for what happened and vowing to never again endanger another young partner. Barbara retired as Batgirl to join Gotham City Police Department and in time follow her father's footsteps as police commissioner, and Tim eventually settled down with a wife and family, and a career as a communications engineer.
Terry decides to question Tim, who denies any involvement and bitterly says he had grown sick of his past life as Robin. Terry then suspects Jordan Price, who would have taken control of the company were it not for Bruce's return. Jordan Price, thinking he will become CEO, plans to hold a private party on his yacht with his girlfriend Amy. However he finds Dee-Dee in her place, Amy having been tied to a pole and gagged at the port. Terry finds the Jokerz on Price's yacht, who reveal that Price had hired them and given them access codes. However, the Joker has sent them to kill Price, as he is no longer needed. Terry rescues Price before a satellite laser destroys the boat, and then turns him in to the police with a recording of Price's conversation with the Jokerz.
Back in the Batcave, Terry deduces that Tim must be working with the Joker when he discovers that the high-tech equipment the Jokerz have been stealing can be combined to form a machine that takes control of any satellite, even an orbiting military satellite with an automated defense system and fire it at will, thus explaining what happened on the yacht—and it can only be built by an engineer of Tim's caliber. Bruce is skeptical about this claim, but nonetheless sends Terry to question Tim again. Terry tries to confront Tim, but is lured into a trap by the Joker, who confirms that he and Tim are indeed working together. Escaping in the Batmobile, he is then chased through Gotham by the laser-armed satellite. Terry tracks the Joker to the abandoned Jolly Jack candy factory. After fighting off the Jokerz, he finds Tim, who transforms into the Joker before his eyes. The Joker explains that when he kidnapped Tim and during the three weeks of his torture, he secretly implanted a microchip (revealed later to have been stolen from Project Cadmus) into the boy's brain that carries the Joker's consciousness and personality, allowing him to physically and mentally transform Tim into a clone of himself at will, eventually becoming strong enough to permanently control his body. The Joker prepares to fire the satellite again to kill Dana, Terry's family and Bruce, but before he can fire the laser, Terry sets Bruce's dog, Ace, on him. Terry knocks the Joker's joy buzzer into the controls, destroying the beam's guidance system, causing it to head to the factory.
The Joker attempts to escape, but Terry seals the factory. A fight ensues between the two, but the Joker is easily able to overcome Terry since he knows all of the original Batman's moves and tricks. Terry then decides to improvise by using his expertise in dirty street fighting moves and mocking his obsession with Batman and his inability to make him laugh. An agitated Joker throws a handful of grenades at Terry, sending him crashing to the floor. The Joker then pins him to the ground and begins to strangle him. Terry, having covertly retrieved the Joker's joy buzzer, delivers a shock to the Joker's neck, destroying the chip, reverting Tim to his old self, and destroying the Joker forever. Terry escapes with Tim and Ace before the satellite destroys the factory and the satellite jamming device. The satellite gets deactivated and floats into outer space.
In the city jail, two of the female Jokerz, Deidre and Delia Dennis, are bailed out by their grandmother, an elderly Harley Quinn, who laments what disappointments they are. Meanwhile, Terry and Barbara meet Tim in the hospital. Bruce arrives just as Terry leaves, telling him that it is not being Batman that makes him a worthwhile person, but the other way around. Bruce then joins Barbara and Tim in the hospital room. The film ends with Terry donning the Batsuit and flying off into the heart of the city.