- At the beginning of the film, most of Stark Industries (Namely the weapons production portion) has been sold to Hammer Industries and the remainder has become "Stark Enterprises".
- Tony is fiddling with a Force Field generator.
- The Arc Reactor technology has advanced to tiny proportions, but Tony hasn't found many non-military applications for it.
- Nick Fury keeps pressing Tony for suits for S.H.I.E.L.D., Tony refuses, so Nick turns to Jim Rhodes to help bring Tony around.
- Zhang Tong, a Chinese scientist working at Stark Enterprises, reveals ten specialized "Rings of Power" designed for personal defense and police use utilizing the miniature Arc Reactors. Tony is impressed, but concerned at the possibility of abuse and shelves them.
- The Rings include:
=o= A tiny Tesla Coil
=o= A miniature Flamethrower
=o= A tiny liquid nitrogen container
=o= A powerful strobe light
=o= A black smoke generator
=o= A version of the Sonic Paralyzer used in the first film
=o= A small air cannon
=o= A tiny fan
=o= A small force field generator, not of the same strength as the one Tony is tinkering with
=o= A tiny capsule of acid
- Thanks to the Arc Generators powering the rings, their effects are amplified far beyond their size would suggest. A full turn clockwise cause the rings to go to "Maximum Setting".
- Raza, the leader of the Ten Rings, is revealed to be alive and in Hong Kong, meeting with Justin Hammer.
- Hammer tasks Raza with stealing a Miniature Arc Reactor to help him power his new weapon prototype, based off schematics Stane left behind in Stark's database.
- Raza assembles a commando team called "The Hand", and raids Stark Enterprises.
- Tony is out partying, and Pepper has a date with Happy Hogan. Jim Rhodes is tinkering with an armor design when the attack occurs, and he dons the Mark III armor to fend them off.
- Rhodes is inexperienced in the armor, but manages to best the Hand. Raza, however, discovers the Rings of Power and uses them to beat Rhodes handedly, destroying the Mark III armor in the process and nearly killing Rhodes when he learns it isn't Stark.
- Enamored with the power of the Rings, Raza and the Hand steal a Arc Reactor and plan on returning to Justin Hammer - to steal his weapon prototype for themselves a conquer Asia.
- Tony returns and learns what's happened, and also discovers Rhodes "War Machine" armor filled with guns and other weapons of warfare. Rhodes admits he was tinkering with a possible S.H.I.E.L.D. armor, and Tony kicks him out of the house, enraged.
- Raza breaks into Hammer's compound and bests Hammer's guards with the Rings. He discovers Hammer's secret weapon - the giant android Ultimo. Powering the behemoth up, Raza and his Hand head for Asia to embark on a mission of conquest. Raza takes the monkier "The Mandarin".
- Raza begins to notice his hands are becoming inflamed and burnt around the rings themselves - there's obviously a side effect to wearing and using the rings for extended periods.
- Tony finishes designing the Mark IV armor just as the first reports of Ultimo and Raza begin filtering out of Asia. Recognizing his technology present within the Ultimo robot itself, nevermind Raza's Rings, he suits up immediately and heads for Asia. He briefly considers donning the suit Rhodes designed, but opts against it.
- One of Mark IV's new features is the ability to go into lower orbit, allowing Tony to cut down on his flight considerably.
- Cue battle between Iron Man and The Hand with Ultimo's support.
- Even with the new suit, Tony can't beat both Raza with his rings and Ultimo, he calls up Jim Rhodes. He asks for help, and despite their earlier argument, Rhodes heads to Stark's mansion to grab the War Machine armor.
- Iron Man is almost defeated by Ultimo when War Machine turns up. With his military grade weaponry, Rhodes is actually able to harm the giant. Tony leaves Jim to deal with the giant robot while he goes after Raza.
- After a lengthy confrontation, which continues the decay and damage to Mandarin's hands, Tony manages to use his new Force Field generator to trap Raza within a Force Field. Mad with vengeance, Raza activates the Flamethrower at Maximum within the Force Field and incinerates himself, leaving nothing but the Rings. While this occurs, Rhodes manages to destroy the Ultimo robot.
- The two reflect on the battle, with both wondering where Raza got Ultimo. Tony admits Jim's armor did the job where Tony's couldn't, and Tony gives it to his friend as a gift. Jim gently prods Tony about the possibility he'll turn it over to S.H.I.E.L.D. and Tony says it's up to Jim to make his own legacy.
- Jim Rhodes does not turn War Machine over to Nick Fury.
- End of the film shows Zhang Tong collecting the Rings of Power and placing them back in Stark Enterprises' lab with a promise to them that there can be only one "Mandarin". Tong contacts Justin Hammer, whom he is employed to, and remarks that the field test of the Rings under combat situations was a success. Hammer agrees and tells Tong to lay low at Stark Enterprises. When Tong inquires about the status of Ultimo, Hammer remarks that the sacrifice was worth it and his top scientists are working on the next stage using the data obtained in the fight.
- Cut to Siberia, at a Russian branch of Hammer Industries, and a very familiar looking Green suit of armor powering up.



