At a psychiatric hospital, former Chief Inspector Charles Dreyfus (Herbert Lom) is largely recovered from his obsession to kill the new Chief Inspector Jacques Clouseau (Peter Sellers) and is about to be released when Clouseau, arriving to speak on Dreyfus' behalf, drives Dreyfus insane again. Dreyfus promptly escapes from the asylum and once again tries to kill Clouseau by planting a bomb while the Inspector (by periodic arrangement) duels with his manservant Cato (Burt Kwouk). The bomb destroys Clouseau's apartment and injures Cato, but Clouseau himself is unharmed, being lifted from the room by an inflatable disguise. Deciding that a more elaborate plan is needed, Dreyfus enlists an army of criminals to his cause and kidnaps nuclear physicist Professor Hugo Fassbender (Richard Vernon) and the Professor's daughter Margo (Briony McRoberts), forcing the professor to build a "doomsday weapon" in return for his daughter's freedom.
Clouseau travels to England to investigate Fassbender's disappearance, where he wrecks their family home and ineptly interrogates Jarvis (Michael Robbins), Fassbender's cross-dressing butler. Although Jarvis is killed by the kidnappers, to whom he had become a dangerous witness, Clouseau discovers a clue that leads him to the Oktoberfest in Munich, Germany. Meanwhile, Dreyfus, using Fassbender's invention, dissolves the United Nations headquarters in New York City and blackmails the leaders of the world, including the President of the United States and his adviser (based on Gerald Ford and Henry Kissinger), into assassinating Clouseau. However, many of the nations instruct their operatives to kill the other assassins to gain Dreyfus's favor and possibly the Doomsday Machine. As a result of their orders and Clouseau's habitual clumsiness, the assassins all end up killing each other until only the agents of Egypt and Russia remain.
The Egyptian assassin (an uncredited cameo by Omar Sharif) shoots one of Dreyfus' henchmen, mistaking him for Clouseau, but is seduced by the Russian operative Olga Bariosova (Lesley-Anne Down), who makes the same mistake. When the real Clouseau arrives, he is perplexed by Olga's affections but learns from her Dreyfus's location at a castle in Bavaria. Dreyfus is elated at Clouseau's apparent demise, but suffers from a toothache; Clouseau, disguised as a dentist, sneaks into the castle - eventually (his entry frustrated by the castle's drawbridge). Not recognized by Dreyfus, Clouseau ends up intoxicating both of them with nitrous oxide. Realising the deception when Clouseau mistakenly pulls the wrong tooth, Dreyfus prepares to use the machine to destroy England. Clouseau, eluding Dreyfus's henchmen, unwittingly foils Dreyfus's plans when a medieval catapult outside the castle launches Clouseau on top of the Doomsday machine. The machine begins to malfunction and begins firing on Dreyfus and the castle itself. As the remaining henchmen, Fassbender and his daughter, and eventually Clouseau himself escape the dissolving castle, Dreyfus plays "Tiptoe Through the Tulips" on the castle's pipe organ, while himself disintegrating, until he and the castle vanish.
Returning to Paris, Clouseau is finally reunited with Olga. However, their tryst is interrupted first by Clouseau's apparent inability to remove his clothes without a struggle, and then by Cato, whereupon all three are hurled by the reclining bed into the Seine. Immediately thereafter, a cartoon image of Clouseau begins swimming, unaware that a gigantic version of the Pink Panther character is waiting below him (a reference to the film Jaws, made obvious by the thematic music as the movie ends).
Dreyfus blackmails the leaders of the world into assassinating who?
Clouseau