The King of Fighters is a tournament held in an alternate dimension. When contestants are issued challenges, they enter the tournament via a special bluetooth headset.
Mai Shiranui and her boyfriend Iori Yagami attend a private unveiling of three relics at a museum in Boston: The Kagura Mirror, the Yagami Necklace and the Kusanagi Sword. Rugal Bernstein storms into the exhibit and steals the three relics, and uses them to disappear into a dimensional portal to awaken the mythical entity known as the Orochi, which grants limitless powers. The sword is revealed to be a fake and the quest is delayed. Mai is told by an injured Chizuru Kagura the real sword is with Saisyu Kusanagi at a mental institution. She is warned she must defeat Rugal and that Iori should not be involved. At the institution, Mai meets a catatonic Saisyu and his son, Kyo, but Iori’s presence suddenly breaks Saisyu’s catatonic state, and the elder Kusanagi threatens to kill Iori before losing consciousness and dying.
At another hospital, Chizuru is recovering from her injury and is informed by her colleague, Scott, that Rugal has altered the King of Fighters database and issued challenges to fighters around the world. CIA agent Terry Bogard enters Chizuru’s room, demanding information on Rugal’s whereabouts and the tournament. She tells that different dimensions exist, but he does not believe. Chizuru tells Terry to go to Seattle and ask Mai, who is an undercover operative sent by the CIA to infiltrate Chizuru’s organization a year ago.
At a cemetery in Seattle, where Saisyu is buried, Kyo and Iori confront each other. Iori explains that both Kusanagi and Yagami clans were destined to be enemies. Mai hitches a ride with Kyo to his home, where she explains that she is looking for the Kusanagi Sword. Kyo tells her that centuries ago, a Yagami ancestor attempted to release the Orochi, but it consumed him with murderous rage. Kyo’s ancestor killed the Yagami and returned the Orochi into its world. Mai tells Kyo that Rugal is out to unleash the Orochi. Kyo wants to confront Rugal, who destroyed his father’s mental state.
At a hotel, Mai and Kyo meet up with Iori and Terry. Rugal is using the tournament dimension to merge it with the real world. After Mai blows her cover in front of Kyo, Iori puts on his Bluetooth headset and enters the tournament dimension to confront Rugal. There, he defeats Rugal’s servants, Mature and Vice, only to have his mind consumed by the Orochi.
The next day, Kyo is lured into the tournament dimension, where he first fights Rugal and loses, but is allowed to live as a warning. Kyo brings out his ancestral sword and joins Chizuru and Terry into the tournament after Mai is dragged in by Rugal. When the four meet up, they are separated into different dimensions, with Kyo fighting Rugal, and Mai and Terry facing Mature and Vice. Rugal is about to decapitate Kyo, when Iori appears and intervenes. Rugal reveals to Kyo that several years back, he battled Saisyu, Chizuru and Iori over control of the Orochi. During that fight, Iori allowed the Orochi to take over his body, defeating Rugal, but also destroying Saisyu’s mental state by bashing his head against a wooden barrier several times. This leads to a fight between Kyo and Iori. Kyo slashes Iori in the back, releasing the Orochi from his body.
Disappointed by the outcome of the fight, Rugal sends Kyo, Iori and Mai into another dimension to face them with his full potential. Chizuru and her multiple clones appear, revealing that she has found the mirror and the necklace. The heroes fail in their first attempt to combine the relics and trap Rugal, with Chizuru mortally wounded. Mai takes her place as the mirror holder, but as she, Kyo and Iori corner Rugal, they are once again overcome by his powers. Rugal destroys Kyo’s sword, but as he is about to finish him off with a fireball, Kyo magically generates a new sword to block it. He then throws the sword and destroys Rugal.
Back in the real world, Scott places a lantern on the ocean in memory of Chizuru. Kyo decides to keep the family tradition by continuing with the tournament. He reflects on his late father’s teachings while Iori stares at him from the other side of the pier.