In this installment of the Lethal Weapon series, Lorna Cole is pregnant with Martin Riggs' baby; they are not married but both are thinking about it and have misgivings and fears. Murtaugh's daughter Rianne is also pregnant and has secretly married Lee Butters, a young cop who works at the same precinct as Murtaugh and Riggs, though she cannot tell her father because he doesn't want her to date cops. Butters has been doing all kinds of things for Murtaugh around the police station, which Murtaugh incorrectly suspects is due to some kind of homosexual attraction to him, when in reality, Butters is actually trying to stay on his father-in-law's good side.
The opening scene is an unrelated sequence in which Riggs and Murtaugh confront a man wearing a flame-retardant armored suit and wielding an automatic firearm 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' investigation of a Chinese immigrant smuggling ring, which begins after a vessel is captured with a cargo hold of slave labor. That night, Murtaugh, along with Riggs and Leo Getz (Pecsi) (who had now become a private detective) finds a small dingy alongside with an entire Chinese family who he 'rescues' and provides shelter for at his house, claiming to be 'freeing slaves'.
Information about Uncle Benny (Kim Chan) then leads them to Chinatown, where they are introduced to their new arch-nemesis, a high-ranking Triad negotiator named Wa Sing Ku (played by Jet Li). Wa Sing Ku is organizing the release from prison of four overlords or Triads, called the Four Fathers, from a corrupt Chinese general in exchange for counterfeit money. The captive artist working on the master-plate to create the 'funny money' is the elder uncle to Hong, the father of the Chinese family Murtaugh has rescued.
Riggs and Murtaugh decide to hire Leo to follow Uncle Benny around. When they get too close, the Triad gang decides to strike back. When Hong contacted his uncle, Riggs and Murtaugh come home to find Wah Sing Ku there with the other gang members holding Lorna and Murtaugh's family hostage and that Hong and his family were already taken away. After a brief skirmish (where Wah Sing Ku dismantles Riggs' gun with a flick of his wrist), the entire family is tied up and the house is set on fire with everyone inside, including both pregnant women. Little Ping, the smallest of the Chinese children, who had evaded capture earlier manages to escape and frees them just enough to break out through the living room window.
Riggs takes a radio from Lorna's car and the pair set off with Rianne's car in hot pursuit of two of the Triads. Reaching them on the freeway, Riggs passes the wheel to Murtaugh, climbs out of the car and leaps over to a mobile home. He pulls one of the thugs through the car window into it, demanding to know where the Hongs are. After engaging in a fight they crash onto the road; Riggs, sitting on a table holds onto the trailer by the plastic covering they fell through, and the Triad is run over by a bus. His partner accelerates and attempts to kill Riggs, who is forced to throw one of the table legs at the assailant. Murtaugh rams into the Triad car and, hearing sirens, the thug makes an escape. Riggs climbs back beside Murtaugh, and they chase the thug, trying to find answers. However, they accidentally fly off a ramp into a building, driving through one of the floors and driving out back onto the road. Then the last Triad they know of is killed by a truck.
Leo alerts them that he had tracked down Uncle Benny at his dentist and while using Leo as a distraction to keep the dentist busy, the three use laughing gas to extract information from him. Here Murtaugh inadvertently learns that Butters is Rianne's husband and the father of her baby, but puts it aside until later. In a comedic scene, Uncle Benny mentions the Four Fathers, which initially is mistaken as 'forefathers'. Benny is later strangled to death by Wah Sing Ku for this indiscretion, and Hong is killed as an example to get his uncle to cooperate, whom is also murdered when his work is complete. After locating the area where Hong's family was held, Ng, one of Riggs and Murtaugh's detective friends, an expert of Chinese society is able to identify the Four Fathers after Murtaugh mentioned them and they are able to figure where the meet was taking place.
Riggs, Murtagh and several other detectives disrupt the exchange and expose the money that is being used to buy the prisoner's release as counterfeit. As a result, the Chinese general personally executes the Four Fathers. Wah Sing Ku shoots and kills the general and a three way gun battle breaks out between the cops, the Triads and the general's private army in the foreign trade zone, presumably down by the docks. During the fight, one of the Triad leaders and older brother to Wa Sing Ku is killed by Murtaugh, and Butters is injured while protecting Murtaugh, but is not critical, to which Murtaugh passes him off to Ng to get him to safety. The climactic scene takes place on a pier where Riggs and Murtaugh, both unarmed, take on Wa Sing Ku who is enraged by the death of his brother. Eventually, Murtaugh is knocked out and Riggs and Wa Sing Ku fall into the water as the concrete pier begins to collapse. In desperation, Riggs finds a AK-47 and kills Wa Sing Ku underwater, but becomes trapped under part of the broken pier. Murtaugh comes to, realizes Riggs is in the water and dives in to free him. Murtaugh tells Riggs that he could hear Riggs willing him to save him.
The movie ends with Lorna and Martin marrying, and Roger accepting Lee and Rianne's marriage. Two babies are born to Rianne and Lorna, as Martin Riggs is finally settling down. The Hong family is granted asylum. The end credits feature a collage of screen shots and snapshots taken during production from all four movies in the series.