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As the opening credits roll, in a fight between Japanese martial artist Ryu, and Muay Thai champion Sagat. Ryu scars Sagat with the Shoryuken and ends the fight with a Hadouken.
Years later, following the assassination of Albert Sellers, the Minister of Justice in London by Cammy, a brainwashed MI6 agent, Chun-Li, an Interpol investigator, suggests that they join forces with the U.S. military to conduct an investigation against Shadaloo. However, Captain Guile, who is out for revenge against Shadaloo's leader, M. Bison, refuses the alliance, preferring to hunt Bison down alone. Elsewhere, at his base in Thailand, Bison orders a worldwide manhunt for Ryu, having witnessed his spectacular fighting potential during the battle with Sagat who he has now recruited into his criminal organization, along with the Spanish claw-wielding narcissist Vega and the American belligerent boxer Balrog. However, Ryu's ability to hide his power has stopped the monitor cyborgs from detecting him, even during his fights with Fei-Long and some Shadowlaw thugs in India.
In the United States, Ryu's former training partner and rival, Ken Masters, is facing problems of his own. Although he is in a relationship with Eliza, he still yearns for a worthy challenge, having fought no one as good as Ryu since they parted ways years before. During a tussle between Ken andThunder Hawk, a monitor cyborg catches sight of Ken's abilities and notifies Bison, who learns of Ryu and Ken's common history and their near-equal fighting skills.
Chun-Li tracks down Guile, showing him he can't do it on his own, and eventually persuades him to put his vendetta on hold and accept Interpol's help. In his first act, Guile warns the Jamaican fighter Dee Jay that Shadaloo is targeting him, and Chun-Li destroys a nearby monitor cyborg to prove it. Watching on a monitor from his VTOL jet, Bison dispatches Vega to kill her. After showering in her apartment, Chun-Li finds herself ambushed by the assassin and a brutal fight ensues. Guile hears the fight and races to the apartment. Though Chun-Li manages to defeat Vega before Guile arrives, she is severely wounded by his iron claw and falls into a coma shortly after Guile arrives on the scene. She is hospitalized and apparently fighting for her life. At the hospital, Guile learns from Interpol about Ken and his past with Ryu. They attempt to find him, but unfortunately, Bison arrives ahead of them and captures Ken, brainwashing him into becoming his newest soldier in Ryu's place. Shortly thereafter, Guile and Interpol manage to locate Ryu, training with E. Honda in the mountains of Thailand.
Guile races to his location and warns him about Ken, but Bison suddenly arrives and unleashes Ken upon Ryu. Ken beats Ryu savagely, but Ryu, unwilling to harm his possessed friend, does not fight back. Bison confronts and defeats Guile, but as a final insult leaves him alive, while Balrog emerges from the VTOL and engages Honda, who defeats him. Battered and bleeding, Ryu finally resolves to fight back against Ken, but memories of their past together wreak havoc on Ken's mind and he finally breaks free of Bison's influence. Enraged, Bison attacks Ken with his Psycho Power and tosses away his unconscious body. Infuriated, Ryu attempts to do battle with Bison, but has very limited success. As they fight, Ken awakens and uses his master's teachings to mend his broken body and rejoin the battle. Despite Bison's advantages with his Psycho Power, Ryu and Ken join forces and manage to pummel Bison, ending the battle with a combined Hadouken which hits Bison directly and sends him flying into the sky. However, the Hadouken immediately bounces back right into Bison's VTOL, destroying it, with Bison himself nowhere to be found.
Interpol destroys Shadaloo's base in Thailand, thus putting an end to the crime syndicate. Guile is called urgently to the hospital. He finds that Chun-Li is awake and overjoyed at the news of Shadaloo's fall, while Guile is delighted that she has woken from her coma. Elsewhere, Ryu and Ken bid each other farewell and part ways once again. As Ryu begins his journey anew, he is ambushed from behind by a huge truck with Bison in the driver's seat, having somehow survived their previous battle. Ryu leaps towards the truck to fight Bison again.
