A concerned Batman visits Arkham Asylum and goes to Joker's cell. The Joker is sitting alone in his cell, playing with a deck of cards and Batman sits at the opposite end of the table. The Dark Knight tells Joker that the constant madness of their lives must end, or otherwise one of them will surely die at the hands of the other. Joker doesn't move and keeps playing with the cards, and Batman grabs the clown's arm, infuriated. Batman notices that he has white stains on his hands and grabs the man in front of him, who is just a man dressed and wearing make-up to look like the Joker. Batman questions the man about the location of the Joker, who has escaped Arkham and is on the loose.

Joker is looking to buy an abandoned amusement park and after he checks the whole place, he kills the owner and claims the park as his own. However, Joker is lost in thoughts and he starts remembering memories from a past life.

The man who would become the Joker is an unnamed engineer who quits his job at a chemical company to become a stand-up comedian, only to fail miserably. Desperate to support his pregnant wife, he agrees to guide two criminals into the plant for a robbery. During the planning, the police come and inform him that his wife has died in a household accident involving an electric baby bottle heater. Grief-stricken, the engineer tries to withdraw from the plan, but the criminals strong-arm him into keeping his commitment to them.

At the plant, the criminals make him don a special mask to become the infamous Red Hood. Unknown to the engineer, this disguise is simply the criminals' scheme to implicate any accomplice as the mastermind to divert attention from themselves. Once inside, they almost immediately blunder into security personnel, and a violent shootout and chase ensue. The criminals are gunned down, and the engineer finds himself confronted by Batman, who is investigating the disturbance.

Panicked, the engineer deliberately jumps into the chemical plant's toxic waste catch-basin vat to escape Batman and is swept through a pipe leading to the outside. Once outside, he discovers to his horror that the chemicals have permanently bleached his skin chalk white, stained his lips ruby red, and dyed his hair bright green. This turn of events, compounding the man's misfortunes of that one day, drives him completely insane and results in the birth of the Joker.

Joker makes his move and he knocks on the door of Commissioner Gordon. Barbara opens the door and is shocked at the sight of the Joker, dressed in a tourist outfit and pointing a gun at her. Joker shoots Barbara in the spine and his henchmen enter the house and knock Commissioner Gordon, while Joker starts undressing the wounded Barbara and takes out a camera.

Barbara is taken to a hospital and the doctors tell Bullock that the damage caused by the bullet would make her unable to use her legs ever again. Batman visits Barbara and when she recovers, she begs Batman to save her father from whatever the Joker has planned.

Joker takes Gordon and imprisons him in a run-down amusement park. His deformed henchmen then strip Gordon naked and cage him in the park's freak show. He chains Gordon to one of the park's rides and cruelly forces him to view giant pictures of his wounded daughter in various states of undress. Once Gordon completes the maddening gauntlet, the Joker ridicules him as an example of "the average man," a naive weakling doomed to insanity.

Batman searches all over the city for Joker with no good results. Suddenly, the Bat-Signal beacons in the night and Harvey Bullock gives Batman two tickets to the abandoned amusement park. As Batman arrives to save Gordon, the Joker retreats into the funhouse. Gordon's sanity is intact despite the ordeal, and he insists that Batman capture the Joker "by the book" in order to "show him that our way works".?

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