A Gotham University Charity Book Signing is in progress and the guests talk about the string of robberies and vandalism that has been plaguing the university. Summer Gleeson greets a man, Dr. Long, and asks to interview him about the recent robberies. While the two enter an elevator, Bruce Wayne heads on and joins the couple. Bruce and Dr. Long discuss about Bruce's deceased father, and whilst Bruce assures Long that he would have been at least pleased that Wayne Enterprise has made great profits, Dr. Long huffs in disagreement. He states that he believes that Bruce has only downgraded his family's name of 'Wayne' by acting nothing more than a rich playboy. Though Summer tries to assure Bruce that Dr. Long is only angry because of the troubles of the university, he’s still inwardly troubled. A helicopter lands on the University Bank and upon noticing it, Bruce heads out.
Meanwhile, two goons and a man dressed up as a scarecrow confront a bank guard. The Scarecrow sprays the guard with a red gas and the guard suddenly sees himself covered with spiders. The goons watch in confusion, as they see nothing. Scarecrow explains that he helped the guard see his worst fear. They then enter into the vault. Inside the vault Scarecrow instructs his goon to take only what money he can carry, then to burn the rest of it; his primary goal is revenge, not theft.
As Scarecrow pours gasoline, Batman arrives. Scarecrow hurls some gas capsules at him, but Batman is wearing a gas mask. Scarecrow switches tack and shoots Batman with a drugged dart while Batman is struggling with one of the goons.
Scarecrow then sets fire to the gasoline and he and his men escape. Batman manages to grab a scrap of Scarecrow’s mask but is weakened by the effects of the gas. While he tries to escape, he hears a voice and sees a vision of his father telling him that he has disgraced the family name. Fortunately, the fire sprinklers come on and extinguish the fire but Batman is still affected. The police arrive and question Batman about who attacked the bank. Harvey Bullock arrives and demands that Batman gives him the scrap of Scarecrow’s mask but Commissioner Gordon arrives and Batman disappears. Elsewhere, Scarecrow watches a newscast on Batman's thwarting of the fire. As he rants, his goons wonder why Scarecrow hates the university so much. He explains that he used to be a professor of psychology at the University, until he was expelled for his experiments on other students involving fear and phobias.
Meanwhile, a ragged-looking Bruce does an analysis on Scarecrow’s mask and waits for his computer’s results. Bruce stares at a picture of his parents and trembles as he hears his father telling him that he failed him. When Alfred hears about the hallucinations, he assures Bruce that Thomas would be proud of him.
Later, at a Gotham University Museum benefit, people give donations to the university but the room is suddenly flooded with gas and Scarecrow waltzes in. He takes the donation money, and then takes Dr. Long prisoner.
When Batman arrives, the crowd now see Batman as a giant bat and attack him in panic. Batman manages to escape, but Scarecrow has already escaped onto a dirigible and flees, trailing the gas hose that was pumping fear gas into the building's air conditioning ducts. As the hose pulls free, Batman manages to grab hold of it.
Scarecrow believes that Batman has been killed by the panicked crowd, but learns otherwise when his goons point out the window. Scarecrow sends Anthony onto the blimp's body to get rid of Batman. In the ensuring fight, bullets are fired into the control cabin, staring a fire. Now out of control, the dirigible crashes into a building and Batman and Anthony tumble off together. Batman manages to keep hold on the dirigible with his grapple gun. As he tries to climb back onto the structure, his hallucination comes on again. However, Batman masters his fear and declares that he is not a disgrace: "I am vengeance...I am the night...I am BATMAN!" The vision disappears, and Batman crashes into the cabin.
Scarecrow tries to hit Batman with his drugged darts again but accidentally hits his goon, Nigel, who sees himself trapped by shrinking prison walls. Seeing that he’s lost, Scarecrow escapes on a glider leaving Batman and the professor alone on the dirigible. Batman manages to save Dr. Long before the dirigible crashes. With Dr. Long saved, Batman summons the Batmobile and checks to see the results of the mask’s analysis. The computer reveals that only five places manufacture such chemicals and Batman cross-references them against former employees of Gotham University. Only one place fits the bill: Crane Chemicals, owned and founded by Jonathan Crane.
Scarecrow manages to reach his chemical plant and removes his mask. However, he discovers that his fear gas has been released into the room and he sees visions of a giant bat attacking him. He then runs into Batman and quakes in fear. As Batman reaches for him, Crane sees him as a giant bat-like demon.
Back at the Gotham Police Department, Bullock tries to convince Gordon that Batman and Scarecrow are working together and claims he’ll bet his badge on it. Just then, Gordon points out that Scarecrow has been delivered to them and asks Bullock about his badge.
Later, Bruce leaves roses at his parents’ grave and silently walks away.