The story was based on the original Ghost in the Shell manga chapter Robot Rondo, albeit heavily modified from the original story. The story begins in the year 2032.
Batou who was originally partnered with Major Kusanagi, who disappeared at the end of the first film, is now teamed with Togusa.
Public Security Section 9 investigate a cyborg corporation called LOCUS SOLUS (from the novel of the same name by French author Raymond Roussel) and its gynoids—androids made in the form of young women and used as sex dolls—that have killed eight people, having deliberately been tampered with in order to trigger a police investigation. The dolls possessed a "ghost" that was created by using an illegal method using a "ghost-dubbing" machine that produces "information-degraded, high-volume copies", but killing the original in the process. Young girls were kidnapped by the Yakuza and sold to LOCUS SOLUS for this process. Two of the girls conspire with a LOCUS SOLUS shipping inspector named Volkerson to cause the malfunctions and thus draw official attention to their plight.
Major Motoko Kusanagi, the protagonist of Ghost in the Shell, is listed as missing, although government agents are still looking for her as she has confidential knowledge on Project 2501. In the film, Batou explains to Togusa that he helped the Major escape because the government only cared about what she knew and not her as a person.
In the climax of the film, when Batou is being overwhelmed by Locus Solus guards and gynoids killing each other, Kusanagi and Batou are reunited in the middle of a firefight when she downloads a part of her consciousness into an empty gynoid. After "Kusanagi" has fulfilled her task, she reassures Batou that she'll always be with him right before the gynoid deactivates.