Captain Gillian Loeb and Detective Harvey Bullock had orders from the mob to murder a man named Oswald Cobblepot. Loeb refused until Bullock pressured him into killing Cobblepot by pointing out that the mob will kill him if he refuses. Loeb faked Cobblepot's death and told him never to return to Gotham. Cobblepot managed to swim to a boat and murdered a fisherman for his sandwich. Thirty-five years later, Loeb was now the police commissioner and was secretly angry at Grange for not approving of his policies and told him that he forced every police officer to sign a petition for a recall. Grange laughed at Loeb by telling him that he didn't have a problem he couldn't handle before going to a ceremony where he was to award Loeb for reducing the crime rate of Gotham City. A villainous gang of carnival performers staged a riot. Batman subdued the criminals after being contacted by Captain Harvey Bullock. Batman interrogated one of the carnival performers and Loeb began to suspect that Cobblepot was their leader after the performer explained that his leader called himself the Penguin. Loeb thought of sending the police after Cobblepot since Cobblepot resembled a penguin until he thought of an idea which was why he decided to get in touch with his mafia contacts.
Cobblepot, who was now a crime lord called the Penguin, went to meet Loeb, Flass, and two PR guys named Punch and Judy after Loeb sent every officer home. Loeb told Penguin that he wanted him to create a huge crime wave in Gotham City so he can replace Grange as mayor as well as murdering the other candidates if they try to run against him. Penguin rudely refused until Loeb revealed that he had Sgt. Branden kidnap his mother Gertrude and told Penguin that he would kill her unless he cooperated. Penguin then agreed to it for his mother's sake. Meanwhile, an orphaned teenager named Selina 'The Cat' Kyle stole Loeb's collection of stuffed animals and was angry upon realizing that Loeb didn't have any moneys or jewels hidden in it. To make matters worse for Selina, Loeb was blaming the whole thing on Batman which made her angry.
Grange, persauded by billionaire Thomas Wayne, refused to put Loeb's policies in action. Outraged, Loeb began torturing a ballerina on his music box behind Thomas' back. After calming down, Loeb secretly ordered Penguin to start the countdown of a bomb that would activate once a civilian pressed a pedestrian crossing button. Unfortunately, a runner was the last person to press the button and it caused an explosion sending him to the hospital. Thomas arrived where he saw Captain Sarah Essen investigating what happened. Essen thought that the runner was the target, however he soon changed his mind once Thomas pointed out that it seemed unlikely that a runner would be targeted. Loeb had the the Penguin and his gang attack downtown Gotham which damaged Grange's reputation and gave Loeb the opportunity to run for mayor. Batman went into the police station and was able to find evidence against Loeb for his crimes. Apparently, Loeb was involved in racketeering and Batman knew this would put him under federal investigation. Batman wanted to investigate Loeb because he suspected that Loeb was mentally unstable for torturing the ballerina on his music box and for sending a runner to the hospital. Batman then left to stop Penguin and his gang since they were attacking downtown Gotham. Selina firebombed the police station that Loeb's office was at and Penguin escaped when Batman confronted him. Batman later confronted Selina at her hideout and got her to return the stuff she stole to Loeb.
Penguin feared that Loeb would never keep his mother safe which was why he cut off his employee's hand just so he can infiltrate Loeb's organization so he can find out where Gertrude is being held at. Loeb sent Flass to go after Selina once he discovered that Selina stole her toys. Selina knew that Flass would kill her and got Flass to drown in cement. Penguin framed Batman for kidnapping Gotham's "Ice Princess" beauty queen. Batman found that Princess on the roof, he was unable to stop Penguin from murdering the Princess using a swarm of captive bats. Loeb discovered the thug that Penguin sent to investigate him was trying to find out where Gertrude was being held and decided to set up a trap for Penguin. Fleeing from the police, Batman realized that the Penguin is remotely controlling the Batmobile, taking it on a rampage through Gotham. Batman was able to dismantle the Penguin's device with help from a garage mechanic named Duke Thomas.
The thug that Penguin sent lead him to where his mother was being held. Unfortunately, Loeb, Branden, and the SWAT team were waiting. The thug betrayed Penguin and Loeb murdered his mother (who though aware of her son being a gang leader still claims him to be a good boy). Loeb revealed to Penguin that he was his older brother. Loeb was ashamed of his mother Gertrude for not abandoning Penguin due to his appearance. Penguin was angered by this since Loeb's daughter Marion is attracted to him and at this betrayal. Penguin managed to use a gun hidden in his umbrella to kill Branden and all the police officers who were involved in his mother's death only for Loeb to survive. Penguin vowed to kill Loeb and then fled to the sewers and ordered his gang to kidnap all of the first born sons of Gotham's citizens.
Loeb threw a christmas party to celebrate since he was now the new mayor of Gotham. Thomas handed Essen the evidence against Loeb and Essen ordered him to be arrested. Essen didn't care how Thomas got the evidence, she just wanted results. The Penguin invaded the party and revealed his intention to drown the kidnapped children and all the city politicians. Penguin forced Punch, Judy, Grange, and several politicians to come with him. Thomas switched into Batman and took out the thugs who were abducting the children. Penguin became outraged by this and decided to unleash an army of penguin soldiers to destroy Gotham with missiles. Duke was able to redirect the penguins to instead fire on the Penguin's hideout.
Penguin tried to flee after noticing that Batman was coming, however Batman caused the duck mobile to crash. Batman then decided to have a talk with Penguin.
"Cobblepot, you have to stop what you're doing," Batman said.
"Why are you being nice to me?" Penguin rudely asked. "You're still mad at me for ruining your rep and trashing your car, are you?"
Penguin smiled sinisterly and pulled out his hand umbrella. Batman pulled out a batarang only to realize that the umbrealla was just a cigarette holder. "All I ever wanted was the love of my fellow man and their painful destruction."
"I get it," Batman said. "You have to be the light and the dark. There cannot be darkness without the light and good without evil. That's why people have morals."
"Life is scary," Penguin said, continuing to smoke. "You're a man who wants to be a bat and I'm a freaky bird who wants to be a man. Can you believe what I just found out tonight? The police commissioner is my brother."
"You're angry at Loeb," Batman said. "I know the reason you crashed his party was because of that. I'm only going to ask why."
"He forced me to do all of this," Penguin whined. "Said he would kill mom if I refused. I tried to rescue her, but Loeb ended up killing her. That was when I learned that prick was my brother."
"I'm sorry about what happened to your mother," Batman said. "But you can still bring your mom with you every where you go. Try to remember something nice she did for you."
"When I was a brat," Penguin said. "I was picked on because I looked like a penguin, a bird that cannot fly. Mom gave me an umbrella to protect myself and from the rain since she said it killed my father."
"I'm sorry to hear that," Batman said. "Did your mother know about you leading a gang?"
"Oh yeah," Penguin said. "I was trying to keep that from her. I did a lot of nasty things. I sold drugs to priests and made school kills do crack. Mom said I was still a good kid before my bro stabbed her."
"Just to let you know," Batman said. "The only reason that you couldn't find Loeb was because he got arrested for his crimes. Seems pretty embrassing to be arrested at your own party."
"Good one," Penguin said, laughing. "I actually love the guy who booked him."
"It was a woman," Batman said.
"Can I get her drunk?" Penguin asked.
"No," Batman said.
"You know," Penguin said. "We could talk all night about why we do what we do, why we dress the way we do, who had the best childhood trauma, who got the worst genes, who's the real monster, and what's truly human." Penguin then pulled out an umbrella and revealed that he had a knife hidden in it. "But hey, in the end it all comes down to who's holding the umbrella....Any last words?"
"Your mom said that you're a still good boy," Batman said. "It was your gang activity that got her killed. Are you sure you want to keep this up or do you want to be someone who can make his mother proud?"
Penguin turned his head away from Batman to look at the ground and then back at him. "Okay maybe you got a point," he said. "Mom got shocked when some fat ass told her about me. But he's dead now." Penguin dropped the umbrella and looked at Batman. "What do you want?"
"Turn yourself in," Batman said. "You can still be a good boy like your mother said by admitting to your crimes and you can be better than your brother since he never got to do it. After you repay your debt to society, that is when you get out, things will get better."
"Okay fine," Penguin grumbled.
Penguin then released the prisoners and turned himself in like Batman wanted. Grange was reinstated as mayor since the citizens of Gotham were now angry at Loeb after learning how he killed Penguin's mother and for creating the crime wave. Grange then promoted Essen to commissioner and the Princess awoke from a coma explaining how Penguin was the one who kidnapped her which had Batman given an apology. The Penguin even confessed to taking control of the batmobile.