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.
The opening scene is an unrelated sequence in which Riggs and Murtaugh, two LAPD sergeants, confront a lunatic 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, Riggs, and Leo Getz (Pesci)- the latter now a private detective - find 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 known as Uncle Benny (Kim Chan) 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). Wah Sing 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 Wah Sing 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.
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 Wah Sing Ku there with the other gang members holding Murtaugh's family hostage; 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 youngest of the Hong children, manages to escape and frees them just in time 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 Triad men. 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 man 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 out back onto the road. Then the last Triad man 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, Riggs, Murtaugh and Butters use laughing gas to extract information from him. Here Murtaugh inadvertently learns that Butters is the father of his daughter's baby, but puts it aside until later. Uncle Benny mentions the Four Fathers, which the detectives mis-hear as "forefathers"; another detective who knows about Chinese society corrects them on this point and helps them piece the entire operation together. Benny is later strangled to death by Wah Sing Ku for his indiscretion, and Hong is killed as an example to get his uncle to cooperate. When the printing plates are finished, the uncle is killed as well.
Arriving at the meeting between Wah Sing Ku and the corrupt general, Riggs, Murtagh, 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. Wah Sing Ku shoots and kills the general, and a firefight breaks out between the cops, the Triad men, and the general's private army in the foreign trade zone down by the docks. During the fight, one of the Four Fathers and older brother to Wah Sing Ku is killed by Murtaugh, and Butters is injured while protecting Murtaugh. The climactic scene takes place on a pier where Riggs and Murtaugh, both unarmed, take on Wah Sing Ku, who is enraged by the death of his brother. Eventually, Murtaugh is knocked out and Riggs and Wah Sing Ku fall into the water as the concrete pier begins to collapse. Wah Sing Ku, after getting brutally beaten as well as impaled, is finally killed by a desperate Riggs unloading an AK-47, but Riggs becomes trapped under part of the broken pier. Murtaugh comes to, realizes Riggs is in the water and dives in to free him.
The next scene shows Riggs at his deceased wife's grave telling her he hasn't visited her in a while (evident from a weed growing over the grave) he then suddenly draws his gun when he hears a noise in the cemetery, the noise which turns out to be Leo Getz practicing his PI techniques. Leo tells Riggs that he and Murtaugh are the only friends he's ever had aside from his childhood pet frog. Riggs' pager reveals that Lorna is having the baby and they hurry to the hospital.
The movie ends with Lorna and Martin's last-ditch marriage in the maternity ward, 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 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.