The pre-title teaser shows three different events: first, a British nuclear submarine experiences a serious disruption of power. The captain looks through the periscope and sees something foreboding, however we do not see what he does.
In Moscow, Colonel Gogol hears from M that the British sub has disappeared. Gogol becomes concerned, especially since his own government has lost contact with one of its own nuclear subs a few days earlier. He promises the aid of his government and calls his best agent, Major Anya "XXX" Amasova to investigate.
In Austria, James Bond is enjoying a romantic encounter in a remote cabin in the Alps when he's called back to duty by M. He dons his ski gear and leaves, his lover says she needs him to which James replies, "So does England!" As James skis away from the cabin, he's pursued by a group of four Russian agents. James is able to evade his attackers and, using a ski pole that doubles as a type of rocket gun, kills one of them, a man whom is the group leader (and who happens to be XXX's lover). Bond approaches a sheer cliff and skis over it, free falling several thousand feet until he opens a parachute decorated with the British Union Jack, escaping his attackers.
Anya Amasova reports to Gogol in Moscow where she's given her new assignment - the search for the missing submarines. Gogol also informs her that her lover was killed in an operation. Amasova is visibly shaken but says she'll dedicate herself to the mission at hand.
Meanwhile, Bond meets with M at a British naval yard where the mission path for the lost submarine is studied: Bond shows M, the Minister of Defense and others a transparency that matches the sub's route, proving it had somehow been compromised. M orders Bond to Cairo on his first lead.
In the Mediterranean Sea, two scientists who have developed a sophisticated submarine tracking device, meet with Carl Stromberg, a rich and powerful businessman who lives in a specially designed city, Atlantis, that can both float and submerge beneath the water's surface. He thanks the two scientists for their invention, but before he allows them to leave, he deals with his secretary, who has stolen information from him; she enters his elevator and Stromberg opens the window panel to reveal a large shark pool, then opens the elevator floor, dropping her into the large pool where a tiger shark eats her alive. As the two men leave by helicopter, Stromberg activates a bomb that destroys it and kills them. He killed the scientists as a loose end to prevent them from ever talking about their work with him... as well as to avoid having to pay them. Stromberg then meets with two hired assassins, the fat Hungarian agent Sandor and the seven-foot tall, silent Jaws, so named because he has steel teeth. Stromberg instructs them to go to Egypt and find the stolen submarine tracking system blueprints and to kill anyone who comes into contact with the plans.
Bond arrives in Egypt, meeting with a old contact who tells him to find a man named Fekkesh, a local businessman whom is seeking to buy the submarine tracking system. Bond goes to the man's house where a woman tells him Fekkesh isn't home and refuses to reveal his location. As Bond kisses her, Sandor tries to shoot him. Bond uses the woman to take the bullet and chases after Sandor, fighting with him and dangling him over the edge of the house's roof. He forces the assassin to reveal Fekkesh's location and then lets him fall off the building, killing him.
Bond goes to Giza to meet Fekkesh at the pyramids where he sees XXX has already found the man. While the pyramid light show goes on, Fekkesh notices Jaws standing to the side. He quickly leaves to escape, Jaws in pursuit, Bond following closely. Jaws corners the man and kills him with a bite to his neck. Jaws also escapes from Bond.
In order to continue the investigation, Bond must meet with a man named Max Kalba at his nightclub in Cairo. Anya Amasova also meets him there and the two meet with Kalba to obtain a valuable microfilm containing designs for the submarine tracking system that may have been used to abduct the missing subs. Kalba prepares to negotiate a price with the two government's agents when he's called away to the phone. Jaws (disguised as a maintenance man) kills him in the phone booth after obtaining the microfilm. Bond and Amasova stow away in Jaws' van and he drives out to a site of ruins in the desert... aware that they are in the back of his van.
In the morning, the two agents chase Jaws through a series of Egyptian ruins, finally cornering him and obtaining the microfilm. Bond and Amasova escape in Jaws' vehicle and make it to a boat on the Nile. Bond secretly examines the microfilm on board and the two settle down for the journey. Suddenly, Amasova renders Bond unconscious with a gas from a fake cigarette and takes the microfilm.
Bond recovers the next morning and reports to another site of ruins where he finds Amasova, Gogol and M waiting. Though Amasova believes she'd outwitted Bond, he reveals that he'd already studied the film without her knowledge. With the assistance of Q, they examine the microfilm, which is worthless, a conclusion that Bond came to when examining it on the boat. However, they do find evidence of a symbol hidden in it that identifies Carl Stromberg. Their superiors order Bond and Amasova to investigate on the island of Sardinia, where Stromberg lives. The two travel there by train (in a scene that recalls the train ride in "From Russia With Love"). They are attacked by Jaws, however, Bond is able to fight him off and expel him from the train.
Upon arriving in Sardinia, Bond and Anya Amasova meet Q who has brought Bond's car, a Lotus Esprit. The two meet with Stromberg's secretary and assistant, Naomi, who takes them out to Atlantis. Bond poses as a marine biologist and meets with Stromberg, who tells the undercover Bond of his love of the sea and how an underwater city (like the model he has in his private chamber) may be the only hope for the future of humanity. As they leave, Naomi is telling Anya about Stromberg's largest ship, a one-million ton supertanker named the Liparus. After seeing a small model of the tanker, Bond privately remarks that the design of her bow is unusual. After Bond and Anya leave Atlantis, Jaws comes out of a hidden room and confirms to Stromberg that Bond and Amasova are the spies that he encountered in Egypt. Stromberg instructs Jaws to wait until Bond and Amasova get ashore and to kill them both.
As they speed away in Bond's Lotus, they are attacked by Stromberg's men, first by a motorbike assassin who attempts to destroy the car with a warhead sidecar. When that plan fails and the cyclist is killed, Jaws and a carload of assassins attempt to shoot at Bond who is able to throw off their pursuit using the car's defenses. They are also attacked by Naomi in a helicopter, firing on them in a strafing run. As the chase continues, Bond drives off the end of a pier and converts his car to a small submarine. He uses a small missile to destroy Naomi's helicopter, killing her.
In the submerged car/submarine, Bond and Amasova proceed to Atlantis, now submerged. Unable to find anything conclusive from outside, they prepare to leave and are attacked by several frogmen and mini-subs. Bond destroys them all with the Lotus' defenses, however, they are forced to surface on a beach when the Lotus is damaged by an underwater mine.
Back at their hotel, the two plan their next move. Bond sends a message to M in London, inquiring about the supertanker Liparus. A short while later, a telex reply comes back explaining that in the past nine months when the Liparus was launched, there is no record of the ship being in port anywhere in the world. Bond and Anya suspect that something is up and decide to find the tanker to get a closer look at it. When Bond lights one of Anya's cigarettes, she notices that the lighter he uses is from the city near where her lover was killed. She confronts Bond on the issue, to which Bond replies that he'd acted in self-defense when he killed the man. Anya vows revenge as soon as their current mission is over, if they're still alive.
The two spies next find themselves on an American submarine monitoring the Liparus. While surveying it, the sub is rendered inoperable and is swallowed by the Liparus; the bow of the tanker opens, revealing a large submarine dock inside, containing the captured British and Russian subs. The crew are forced out of the sub and taken prisoner by the heavily armed crewmen. Bond and Anya are identified almost immediately and are also taken prisoner. On the bridge of the Liparus, Stromberg explains his plans to use the nuclear missiles aboard both the captured British and Russian subs to ignite a nuclear war between the superpowers. The resulting nuclear holocaust will destroy the surface world, leaving Stromberg the opportunity to rule an underwater kingdom.
Stromberg departs for Atlantis with Anya as his personal captive, leaving his crew to begin the assault as crews board the British and Russian subs and depart to their launching stations in the Atlantic Ocean. Afterwords, the Liparus' captain orders Bond to be put with the rest of the prisoners. Bond escapes before he can be imprisoned and frees the British, Russian and American sailors. The combined sub crews lead an all-out assault on the Liparus' crew, taking the dock areas and most of the ship despite taking heavy casualties, including the British sub captain. Unable to break into the heavily-fortified bridge control room, Bond uses a nuclear warhead detonator to blow a hole in the armored wall of the control room, and the crews kill the rest of the Liparus crew, including the captain.
With the two Stromberg-controlled submarines on their launch stations in the Atlantic, Bond has the American sub captain use the tracking system computer on the Liparus to transfer the coordinates of each submarine missles to the other as their targets. The ruse works, causing the two submarines to destroy each other with each other's missles. On fire from the battle, the Liparus begins to blow up from the fires on the ship. Bond, the American sub captain, and the remainder of the American, British, and Russian crews board the American sub and escape from Liparus before it explodes and sinks.
They set course for Atlantis, which has been ordered to be destroyed. Bond argues with the American captain that Anya is still on Atlantis and must be rescued first. He is given a wetbike (an early Jet-Ski) and arrives at Atlantis ahead of the sub. Bond takes the elevator to Stromberg's level, avoiding the trap door in the elevator floor. Bond finds Stromberg in his massive dining room. Stromberg attempts to kill Bond with a harpoon gun located under the dining table but misses. Bond returns fire, hitting the villain several times in the chest, killing him.
Still searching for Anya, he encounters Jaws and outwits him, using an electromagnetic crane to seize his metal teeth and drops him into the shark tank. The shark is no match for its namesake; Jaws quickly bites and kills it.
Bond finds Anya tied up in a torture room, just as the American submarine begins its attack, torpedoing Atlantis. The city begins to sink into the ocean, slowly filling with water. Bond and Anya escape from Atlantis in a pod that surfaces. (Jaws himself is also seen escaping the stricken Atlantis and swims off.) In the pod, as Bond relaxes, Anya takes his gun, seemingly intent on killing him. But she changes her mind and shoots off a cork on a champagne bottle, having forgiven Bond in which she professes her love for him.
A little later, the escape pod is found by a British vessel which captures it. M, Minister of Defense Gray and General Gogol find the two semi-nude agents in the midst of a romantic encounter inside.