One year after Ninja Gaiden Black, master blacksmith Muramasa is setting up shop in Tokyo, Japan. A CIA agent named Sonia enters the place and asks for Ryu Hayabusa's whereabouts, until members of the Black Spider Ninja Clan attack the shop and kidnap her. Enter the Dragon Ninja Ryu, who fails to stop Sonia's kidnapping and makes haste around the Tokyo skyscrapers and rescues the agent, who informs him of an attack on the Hayabusa Village by the Black Spider Ninjas, who wish to steal the Demon Statue they possess and protect.
Ryu returns to his home and finds his father, Joe Hayabusa dueling with Genshin, leader of the Black Spider Ninja Clan. Unfortunately, the Demon Statue is taken away by Queen of the Greater Fiends and the Ruler of Blood, Elizébet, and Joe urges his son to retrieve the statue at all costs. Ryu travels around the world with Sonia, in pursuit of Elizébet and the Demon Statue, while encountering legions of Black Spider Ninjas, Fiends, and three other Greater Fiends: Alexei, the Graceful Ruler of Lightning; Volf, the Invincible Ruler of Storms; and Zedonius, the Malevolent Ruler of Flame.
Ryu tracks Elizébet down to South America, where she offers the Demon Statue to Infernal High Priest Dagra Dai, in order to resurrect the ancient Archfiend, Vazdah. Elizébet duels with Ryu and he defeats her, but Elizébet proclaims her return. An overlooking Genshin explains that the fiends are looking to resurrect the Archfiend who is supposed to emerge from Mount Fuji back in Japan. The mountain is also the place which bound both the Black Spider Clan and The Dragon Lineage. Ryu returns home, cautioning Sonia not to follow him.
As Ryu overlooks the fire-brimming Mount Fuji, Ayane enters with the Eye of the Dragon, a gift from Joe Hayabusa, and Ryu equips the relic onto his Dragon Sword, forming the True Dragon Sword again. Heading to the mountain's summit, Ryu finds Genshin waiting for him at the crater's entrance. As Mount Fuji erupts, Genshin reveals to Ryu that he never cared for "tantrums of the archfiend" and that their moment has finally arrived. The two ninjas fight to the death before Genshin falls dead and Ryu leaps into Mount Fuji. Elizébet appears over a deceased Genshin looking to revive him as a fiend as Ryu descends into Mount Fuji.
Ryu fights past hordes of Fiends and singlehandedly defeats Zedonius, Volf, and Alexei, and rescues a captured Sonia. He instructs her to stay put and to not move. Ryu heads into another room and finds a resurrected Genshin, transformed into a Fiend, back for a fourth and final battle. The two ninja battle in another arduous battle ending with Ryu eventually cutting Genshin down, even splitting his face armor doing so. Genshin and Ryu, though mortal adversaries, share a final mutual respect as ninja in Genshin's dying moment. Genshin shares with Ryu that all of his actions were meant to strengthen the Black Spider Clan as a whole (his cause all along) and has no regrets of pursuing that. He acknowledges Ryu as a great warrior, and in support of Ryu's cause hands him the cursed blade of the archfiend for use before dying. A furious Elizébet appears, and chastises the Black Spider Ninja for losing, even with his power. Ryu attacks Elizébet, and angrily cuts her down to red dust with the combination of his own dragon sword and Genshin's blade of the archfiend. He states that the overlord had more to live for than she ever would.
Traveling deeper into the Underworld, Ryu confronts Dagra Dai, who is nearly finished with the Archfiend's resurrection, and defeats him. As a last resort, the Infernal High Priest offers his life to Vazdah, and the Archfiend is reborn. Ryu takes down the monstrosity and heads to the surface with Sonia, but a drop of his blood from an open wound accidentally spills onto the fiend and revitalizes Vazdah, who ascends to the summit in its true form. Amidst an erupting Mount Fuji, Ryu squares off with the Archfiend in a climatic duel to decide humanity's fate and wins. Sonia and Ryu reunite and climb to the top of the mountain, sharing the sunrise together.
In a post-credits scene, amongst a field with countless number of blades embedded into the ground, Ryu plants Genshin's Blade of the Archfiend into the ground and bows in respect for the Black Spider Overlord. The Dragon Ninja takes one last look before taking off into the fog. The ongoing story of Ryu Hayabusa continues in Ninja Gaiden 3