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One year after the events of the previous film, John Brown/Inspector Gadget and Gadget mobile struggle with a lack of crime in the city of Riverton, and constant glitches in Gadget's machinery. One night Gadget, gets a call revealing that his archenemy Sanford Scolex/Dr. Claw has escaped from prison. Gadget promises his boss, Police Chief Quimby to capture Claw, but Quimby and Mayor Wilson unveil an upgraded female Gadget-type robot Gadget Program 2 , to replace the malfunctioning Gadget believing that he won't succeed with his glitches. Gadget begins to fall in love with the new robot G2. Gadget is pulled off the Claw case in favor of G2 much to his disappointment, but is offered another secret case. Scolex plans to steal 5 trillion dollars worth of gold from the Federal Reserve in Riverton. In addition to his old minions Brick and McKible , Scolex recruits Squint Jungle Bob, and The Ninja , at a bar called "The Blue Monkey." Gadget and his niece, Penny , read it in the news, and go to the bar and cause a brawl, which is cleaned up by G2. Penny using evidence in a film she recorded, of Scolex's minions in their applicant meeting, finds out that Claw is planning a heist at the Concentrated Industries warehouse, and tells Gadget and G2. Chief Quimby arrives and learns about the heist, but orders Gadget to not go within 100 yards of G2's stakeout. G2 stakes out the warehouse, and the minions break in to steal the first component of Scolex's secret weapon. G2 almost foils the heist, but Gadget, having been convinced by the Gadgetmobile to impress G2, uses his glitches to accidentally crash into her and the criminals escape. As punishment, he is demoted to bathroom lieutenant at the police station. A day later Gadget is given a letter to attend the science convention, where Brick and McKibble plant a circuit override chip on Gadget's hat, allowing Claw to control Gadget. In the resulting chaos, Brick and McKibble use the distraction of the scientists, to steal a "protoid" laser from the science convention, but Brain grabs Brick's bowling shoe as a clue for Penny. Despite showing Chief Quimby the override chip, Quimby tries to fire Gadget for what happened and costing $100,000 in damages but Gadget instead chooses to quit since it wasn't his fault. Gadget tries to find a new job, but his glitches keep wrecking everything and gets fired as usual. Eventually he successfully gets a job as a parking valet at the Riverton Museum. Penny, continues her own investigation, which leads her to an abandoned bowl-rite bowling factory. Meanwhile Claw steals a 20 pound ruby on loan from the Rajah of India at the Mayor's Fundraiser by distracting the people, police and the mayor with laughing gas. G2 tries to stop him, but falls into a magnetic trap and fails to stop Claw, so Chief Quimby is ordered to deactivate G2. Claw and his minions return to their hideout where Penny still is. While hiding, she and Brain overhear Claw's plan and try to escape, but Penny is captured while Brian is able to escape. Gadget goes to the police department and reactivates G2. Brain arrives, barking to alert Gadget, but neither him nor G2 can figure out what he's trying to tell them. Using an experimental dog translator collar created by Baxter, the scientist who created Gadget and G2, Brain's barks are translated into English. Brain then informs Gadget and G2 that Penny's been kidnapped by Claw and of Claw's plan. Gadget asks for G2's help in stopping Claw and rescuing Penny, to which she agrees. Claw activates his secret weapon that freezes time in Riverton, allowing him and his minions to rob the Federal Reserve with ease. Gadget and G2 however avoid the weapon blast, with the help of the Gadgetmobile's rockets and they drive back to Riverton, and confront Claw in the midst of the robbery. Claw, Brick, and McKibble escape with Penny and Claw orders his other minions to hold them off. Gadget and G2 decide to switch Gadget's malfunctioning chip with one of G2's, in order to make Gadget work perfectly, leaving G2 with Gadget's glitches. G2 defeats the minions while Gadget goes after Claw. Claw drops Penny in a go-kart full of explosives to stall Gadget. Gadget manages to rescue her before the kart detonates and G2 arrives with the Gadgetmobile. They drive after Claw at a big bridge and then Gadget uses a bubblegum glitch to trap Claw, his truck, and his minions. Brick and McKibble try to flee, but they end up sticking to the gum and they are forced to surrender while Dr. Claw gets away in a rocket-like escape pod, vowing that he will be back "next time". Gadget, G2, and Penny reverse the effects of Claw's secret weapon before being allowed to continue working in the police force. They are awarded for their heroism. As Gadget and G2 shake hands, congratulating each other, their hats malfunction, flashing love hearts, revealing their true feelings. Ends with Gadget and G2 beginning a relationship, with fireworks coming from their hats, as they kiss. However, one of the rockets lands in front of the mayor and Quimby, exploding in their faces; then they yell "Gadget" with much anger.

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