After the failure of the Robocop program, OCP is on the verge of bankruptcy after a series of failed business plans and drop of stocks, and are now struggling with their plans to create the new Delta City. To speed up the process, OCP creates an armed force called the Urban Rehabilitators, nicknamed "Rehabs," under the command of Paul McDaggett (John Castle). Ostensibly its purpose is to combat rising crime in Old Detroit, augmenting the ranks of the Detroit Police Department in apprehending violent criminals. In reality, it has been set up to forcibly relocate the residents of Cadillac Heights. Nikko, a Japanese-American computer whiz kid, loses her parents in the process.

The police force is gradually superseded by the Rehabs, and violent crime begins to spiral out of control. The Delta City dream of the former OCP CEO, "Old Man", lives on with the help of the Japanese Kanemitsu Corporation, which has bought a controlling stake in OCP and is trying to finance the plan. Kanemitsu (Mako), CEO of the Kanemitsu Corporation, sees the potential in the citywide redevelopment, and moves forward with the plans to remove the current citizens in order to create Delta City. The company develops and uses its own ninja androids called "Otomo" to help McDaggett and the new OCP president (Rip Torn) overcome the resistance of anti-OCP militia forces.

RoboCop (Burke) and partner Anne Lewis (Allen) try to defend civilians from the Rehabs one night, but Lewis is mortally wounded by McDaggett and eventually dies. Unable to fight back because of his "Fourth Directive" programming, RoboCop is saved by members of a resistance movement composed of Nikko and residents from Cadillac Heights and eventually joins them. Due to severe damage sustained in the shoot-out, RoboCop's systems efficiency plummets, and he asks the resistance to summon Dr. Lazarus, one of the scientists who created him. Upon arrival she begins to treat him, deleting the Fourth Directive in the process. During an earlier raid on an armory, the resistance picked up a jet-pack prototype, originally intended for RoboCop's use, which Lazarus modifies and upgrades to hold RoboCop.

As Old Detroit is being cleaned up, Kanemitsu arrives and finally comes face to face with RoboCop and his group, while his translator (Doug Yasuda) tells the OCP president on Kanemitsu's behalf that he is fired, as the corporation shuts down OCP for good and plans to leave Detroit. Kanemitsu then bows to RoboCop and the group in respect.