The movie starts off with Tony Stark (Robert Downey Jr.) narrating that he has lost everything due to the demons that he created in his past. The movie flashes back to 1999, where Tony is at a party with Maya Hansen (Rebecca Hall), a botanist who specializes in DNA reproduction. As Tony heads for the elevator to his hotel room with Maya, he is approached by a crippled scientist, Aldrich Killian (Guy Pearce). Aldrich forces his way into the elevator with Tony to speak with him. Aldrich wants Tony to provide funding for his endeavor Advanced Idea Mechanics (AIM). Tony promises to meet Aldrich at the roof of the building they are on in five minutes.
Tony and Maya enter her room where Maya shows him the research she is working on. It involves utilizing DNA to reproduce the limbs of plants. Happy Hogan (Jon Favreau) is there with them. Tony and Maya proceed to the bedroom for some alone time. Happy follows them into the bedroom and rips off a leaf and stem of an experimental plant Maya is working with. The plant regenerates its leaves and stem. However, a few minutes later, the entire plant explodes in the room. Happy tackles Tony in the bed to make sure he is okay. After checking everything out in the other room, Happy says everything is okay and leaves the room. Maya and Tony proceed to have a one night stand. In the morning, Maya is left with a note from Tony that says “You know who I am.”
The movie flashes back to present-day. On the television, there is news of a string of bombings that has been caused by the terrorist known as the Mandarin. The intelligence agencies have no way to track the Mandarin due to the lack of forensic evidence.
The movie shifts to Stark Industries where Pepper Potts (Gwyneth Paltrow) meets with Aldrich. She is surprised to see that Aldrich is no longer crippled and is very handsome and fit now. Aldrich shows her his new experiment that he is working on which involves being able to isolate and empower certain areas of the human brain. Happy video chats with Tony to tell him about Pepper’s meeting with Aldrich. Aldrich asks Pepper to fund his project, but she refuses because she believes his research can be weaponized. Aldirch leaves disappointed but tells Pepper he will see her again soon.
Pepper returns to Tony’s home, where he tells her about his panic attacks and sleep insomnia. He also questions her about her meeting with Aldirch, to which she gets mad at him for spying. Tony apologizes and they patch things up.
At the Chinese theater in Los Angeles, Happy Hogan is walking around and notices Aldrich’s bodyguard/henchman, Eric Savin (James Badge Dale), who was present at Stark Industries during Pepper’s meeting with Aldirch. Another henchman nearby injects himself with some type of medicine, and slowly begins to glow red and turn super hot. He eventually explodes into pieces and causes a massive explosion inside the theater which wounds Happy seriously. As Happy drifts into unconsciousness, he points his finger at some dog tags for Tony to pick up on.
Tony is distraught over Happy’s injury. He goes on live television when he is interviewed and states his home address on the news. He issues a threat to the Mandarin and tells him to come find him. Tony returns home. As he is working in his laboratory, Maya comes to visit him and tells him that she needs to meet with him alone to discuss an important matter. Meanwhile, Pepper is packing for a trip and comes down to meet with them. On the TV in Tony’s home, Maya notices helicopters coming to attack Tony’s home. Tony’s home is destroyed, but Pepper and Maya manage to get away safely with the help of the Iron Man suit. Tony falls into the ocean with his suit on. His artificial intelligence system, JARVIS (voiced by Paul Bettany), flies him to rural Tennessee because it follows a flight plan from Tony’s investigation into the Mandarin.
Tony calls Pepper to let him know he is alive and drags the suit to an abandoned looking farmhouse. His suit is out of power and cannot fly him to California. As he is working on his suit, the son of the farmhouse owner returns to find Tony. After some bantering and recognizing the Iron Man suit, the boy, whose name is Harley (Ty Simpkins), agrees to help Tony in his investigation.
Tony investigates the remains of a local explosion that is similar to the Mandarin attack. He notices that six deaths were reported, but there were only five burned shadows on the surrounding walls where the explosions took place. He eventually finds the mother of one of the individuals who died in the explosion. They meet in a bar, and she passes him a file of a soldier believed to be dead, Eric Savin, who the audience knows is alive because he is Aldrich’s henchman. At this point, two Mandarin agents, Ellen Brandt (Stephanie Szostak) and Eric Savin, attack Tony. During the battle, the two agents are wounded multiple times, but their body miraculously heals immediately. Ellen is eventually killed by Tony. Eric is rendered immobile after Tony knocks him out with a spare Iron Man plasma blaster he kept as an emergency weapon on him. Tony gets away safely with the help of Harley.
Tony reads Eric’s file and notices that the word MIA on his file also spells AIM. He uses Colonel Rhodes’ (Don Cheadle) army login credentials to investigate and discovers the Mandarin explosions were all triggered by soldiers from the Extremis program. The Extremis program is an experimental treatment intended to allow people to recreate their limbs and recover from all types of debilitating injuries. However, if the user cannot accept the treatment, he/she will heat up and explode into pieces.
After his discovery, Tony traces the Mandarin to Miami. He infiltrates the headquarters using homemade weapons. Eventually, he confronts the Mandarin (Ben Kingsley). Tony discovers the Mandarin is actually a British actor named Trevor Slattery, who is oblivious to the acts the Mandarin has carried out. Trevor has substance abuse problems and confesses that he was hired by Aldrich to act as the Mandarin. In return, he got drugs, alcohol, and women. After this discovery, Tony is knocked out.
When Tony awakes, he sees Maya, who confesses that she was in cohorts with Aldrich the entire time. Aldrich used her DNA research to create the Extremis program. The research was used to cure his own disability and those of injured war veterans. Tony tells Maya that she still has her soul and knows that what Aldrich is doing is wrong. Aldrich enters and tells him that he has kidnapped Pepper and subjected her to Extremis. He wants to use her as leverage to convince Tony to help fix the drug’s flaws and prevent more people from blowing up. Maya threatens Aldrich to stop and let Tony go or she will inject herself with Extremis, which could kill her and prevent any further developments in the drug. Instead of doing as he is told, Aldrich shoots Maya in the heart without hesitation.
In the next scene, War Machine is captured when he enters a trap set by Aldrich. He has been manipulating the American intelligence agencies to send out false information regarding the Mandarin’s location. Rhodes is captured and subjected to torture when Aldrich slowly heats up the War Machine suit with Rhodes inside. Aldrich has the ability to generate extreme heat with his palms. Eventually, Rhodes jumps out of the suit and is knocked out.
Meanwhile, Tony’s suit from the Tennessee farmhouse is fixed. It flies to him, and he uses it to break out of his captivity. He reunites with Rhodes, who is located at the same facility.
Aldrich uses the suit as a Trojan Horse and sends it aboard Air Force One. The president (William Sadler) is kidnapped, and the people on board Air Force One are thrown out of the plane. By remotely controlling his Iron Man suit, Tony saves all of the people thrown out of the airplane.
Tony and Rhodes track Aldrich to an oil drilling platform where Aldrich intends to kill the president on live television. The vice president of the United States (Miguel Ferrer) will become a puppet president under the control of Aldrich upon the death of President Ellis. He is under the control of Ellis because his granddaughter is missing half her leg and is confined to a wheel chair.
Upon reaching the platform, Rhodes and Tony split up. Rhodes is tasked with saving the president while Tony goes to save Pepper. Although the audience was lead to believe that Tony only had one suit left, he actually had a secret underground storage room for multiple suits under his house. He tells JARVIS to provide air support in the form of these suits. The suits arrive and destroy many Extremis soldiers. James Rhodes secures the president and flies him to safety after regaining control of his War Machine suit.
Tony eventually finds Pepper and discovers she has survived both phases of the Extremis drug administration. However, before he can free her, the rig collapses around them, and he is unable to grab her before she falls to her apparent death. Aldrich witnesses her death and tells Tony that is too bad he could not save her. Aldrich also states that he would have been able to. Tony and Aldrich fight and eventually Tony traps him in an Iron Man suit that self destructs. However, Aldrich still manages to survive. Pepper shows up again and reveals that her Extremis powers allowed her to survive her fall. She battles Aldrich and finishes him off once and for all with a bomb.
After reuniting with Pepper, Tony orders JARVIS to perform a “clean slate.” JARVIS destroys each Iron Man suit remotely. The vice president is arrested. Pepper undergoes surgery to remove Extremis and Tony undergoes surgery to remove the shrapnel near his heart. After the surgery, Tony throws his old chest arc reactor into the sea. He notes that he will always be Iron Man, even with no armor.
After the credits, it is revealed that Stark has been recounting his experiences to Dr. Bruce Banner (Mark Ruffalo), who awakens, having fallen asleep at the beginning of Tony's story.
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