The Leprechaun is on a desolate planet attempting to court a princess named Zarina, whom he has kidnapped in a plot to marry her, then murder her father in order to become king of her home planet, Dominia. A group of space marines attack and the Leprechaun kills one of the marines, Lucky, with a lightsaber. When another marine, Kowalski, throws a grenade and it lands near Zarina, the Leprechaun jumps in the way, and, though Zarina is saved, the explosion of the bomb kills the Leprechaun and causes Zarina to lose a hand. While the rest of the crew attend to Zarina, Kowalski urinates on the Leprechaun's decapitated head.
The marines return to their ship with Zarina, where their leader, the half-robotic Dr. Mittenhand, explains that the princess has regenerative powers (she regenerates a hand she lost) and his plans to use Zarina's DNA to recreate his own mutilated body. Elsewhere on the ship, the Leprechaun violently emerges from Kowalski's penis when he attempts to have sex with another marine, Dolores, killing him in an incredibly painful and humiliating manner (and leaving the remains of his penis in torn shreds). The Leprechaun then kills most of the crew members in various gruesome and absurd ways. He finds Zarina in Dr. Mittenhand's laboratory, making his way in by assuming the image of a completely naked Doctor Tina Reeves, and injects the doctor with a mixture of his intended bride's DNA and the remains of a scorpion and a tarantula, and initiates the ship's self-destruct mechanism. A surviving marine, Sticks, rushes to the bridge to defuse the self-destruct but he is stopped by a password prompt. The other survivors, Sergeant Books Malloy and Tina, confront the Leprechaun in the cargo bay, who grows to many times his own size after being exposed to Dr. Mittenhand's experimental enlargement ray. Tina crawls through the air ducts, where her red pants get torn off by Dr. Mittenhand. Tina spends the remainder of the film in a T-shirt and black panties, much to her sexual humiliation.
Sticks is attacked and tangled in webs by the now mutated and deformed Dr. Mittenhand, who has taken the shape of a giant spider-like creature. Tina sprays the doctor with liquid nitrogen from a hose and then shoots him, shattering his body. Books avoids the giant Leprechaun and opens the airlock so the villain is sucked out into space and explodes while Zarina watches in glee. Books joins the others at the helm, and they discover that the password is "Wizard," since Dr. Mittenhand previously referred to himself as "the wizard behind the curtain," stopping the self-destruct with only seconds to spare. The three rejoice and Books and Tina kiss as the spaceship flies past the remains of the giant Leprechaun's body. They fly past his fist, clenched with middle finger extended.