Clayface has returned to Gotham and is up to his old tricks again, albeit with a small problem: his clay body is finally giving up and falling apart. Fortunately though, an old friend and co-star of his, Dr. Stella Bates, knows a way to keep him together, although to acquire the necessary funding, Clayface is forced to commit robberies, one of which at Tarnower Financial brings him into a conflict with Batman, who offers him help the legal way. Clayface angrily refuses, knowing that Batman will most likely send him to Arkham Asylum, and tries to run away, but his body starts giving in and Batman catches up. Clayface collapses onto a bin when Stella arrives and rescues him in time. Stella takes Clayface to her laboratory and uses a machine to put him in a plastic coating to keep him together, a procedure which knocks him out cold for a while, until he wakes up and lashes out at Stella for watching an old movie of his, claiming "that's not me anymore!" Clayface immediately apologises, and Stella shows him a way to increase his powers allowing him to take the form of Matt Hagen permanently: an isotope called Mp40, the only source of which is found at Wayne Biomedical Labs. Willing to risk his life, Clayface vows to remove the plastic coating and steal the Mp40 from Wayne, unaware that this will arouse Batman's rage.
Batman, meanwhile, takes a sample of Clayface's body back to the Batcave, and learns of Clayface's condition. Also remembering Stella from the Tarnower Heist, Batman tells Alfred to look through Hagen's career records for any sign of a relationship with a female doctor. Alfred searches the records, but finds nothing, and informs Bruce, who is at Wayne Biomedical. However, Bruce's own problems rise when an intruder breaks into the laboratory.
Bruce investigates as Batman, and finds Clayface, disguised as a woman, fleeing the building with a canister of Mp40. Enraged, Batman persues Clayface onto a train, where Clayface's body starts to give up again, and he "melts" back into his own form, scaring the passengers out. Batman and Clayfce then fight alone, until Batman sprays Clayface with a freezing gas to get the canister back, but Clayface jumps out of the train window and lands in a truck's cargo hold, breaking into pieces. Batman watches the truck leave, but Clayface thaws out and eyes the canister in his hand, laughing maniacally.
Batman returns to the Batcave, where he and Alfred finally learn the identity of the female doctor from Hagen's movie Dark Interlude (the movie Stella was watching), and Batman finds her location in the bank's records, tracking her to her laboratory by the ocean. At the lab, Stella starts pumping the Mp40 into Clayface, who is once again inside the plastic coating. Clayface demonstrates the Mp40's success by attempting to transform back into Matt Hagen, which he almost does until Batman arrives and coldly turns the machine off. Batman taunts Stella and Clayface for their carelessness, and an angry Stella lunges at Batman, only to smash headfirst into a pile of test tubes when Batman dodges. Clayface, losing control, breaks out of his coating and proceeds to absorb Batman, hoping to drown his enemy. But Batman uses his grappling gun to blast his way out of Clayface's body.
Batman and Clayface fight again, and take the battle outside. The rain weakens Clayface, giving Batman the upper hand, but Clayface, determined to kill Batman no matter what (ignoring Stella's warnings), pushes him off the cliff, but Batman pulls him off as well. Batman holds on with a Batarang as Clayface holds onto Batman's leg, but the rain weakens Clayface even more, and when Batman tries to hold him, his arm breaks, sending him plunging into the ocean below, where he dissolves.