In 2029, with the advance of cybernetic technology, the human body can be "augmented" or even completely replaced with cybernetic parts. Another significant achievement is the cyberbrain, a mechanical casing for the human brain that allows access to the Internet and other networks. An often-mentioned term is "ghost", referring to the consciousness inhabiting the body (the "shell"). Major Motoko Kusanagi is an assault-team leader for the Public Security Section 9 of "New Port City" in Japan. Following a request from Nakamura, chief of Section 6, she successfully assassinates a diplomat of a foreign country to prevent a programmer named Daita from defecting. The Foreign Minister's interpreter is ghost-hacked, presumably to assassinate VIPs in an upcoming meeting. Believing the perpetrator is the mysterious Puppet Master, Kusanagi's team follows the traced telephone calls that sent the virus. After a chase, they capture a garbage man and a thug. However, both are only ghost-hacked individuals with no clue about the Puppet Master. The investigation again comes to a dead end. Megatech Body, a "shell" manufacturer with suspected close ties to the government, is hacked and assembles a cybernetic body. The body escapes but is hit by a truck. As Section 9 examines the body, they find a human "ghost" inside its computer brain. Unexpectedly, Nakamura arrives to reclaim the body. He claims that the "ghost" inside the brain is the Puppet Master himself, lured into the body by Section 6. The body reactivates itself, claims to be a sentient being and requests political asylum. After the Puppet Master initiates a brief argument about what constitutes a human, a camouflaged agent accompanying Nakamura starts a diversion and gets away with the body.

Having suspected foul play, Kusanagi's team is prepared and immediately pursues the agent. Meanwhile, Section 9 researches "Project 2501," mentioned earlier by the Puppet Master, and finds a connection with Daita, whom Section 6 tries to keep from defecting the country. Facing the discovered information, Daisuke Aramaki, chief of Section 9, concludes that Section 6 created the Puppet Master itself for various political purposes. This is why Section 6 is desperately trying to reclaim the body.

Kusanagi follows the car carrying the body to an abandoned building. It is protected by a large walking tank. Anxious to face the Puppet Master's ghost, Kusanagi engages the tank without backup and is nearly killed. Her partner Batou arrives in time to save her, and helps connect her brain to the Puppet Master's.

The Puppet Master explains to Kusanagi that he was created by Section 6. While wandering various networks, he became sentient and began to contemplate his existence. Deciding the essence of humanity is reproduction and mortality, he wants to exist within a physical brain that will eventually die. As he could not escape Section 6's network, he had to download himself into a cybernetic body. Having interacted with Kusanagi (without her knowledge), he believes she is also questioning her humanity, and they have a lot in common. He proposes merging their ghosts, in return, Kusanagi would gain all of his capabilities. Kusanagi agrees to the merge.

Snipers from Section 6 approach the building, intending to destroy the Puppet Master's and Kusanagi's brains to cover up Project 2501. The Puppet Master's shell is destroyed, but Batou shields Kusanagi's head in time to save her brain. As Section 9 closes in on the site, the snipers retreat.

"Kusanagi" wakes up in a new cyborg child body in Batou's safehouse. She tells Batou that the entity within her body is neither Kusanagi nor the Puppet Master, but a combination of both. She promises Batou they will meet again, leaves the house and wonders where to go next.

The story is loosely based on Ghost in the Shell manga chapter "Robot Rondo" (with elements of "Phantom Fund"). Opening in 2032, Public Security Section 9 cybernetic operative Batou is teamed with Togusa, an agent with very few cybernetic upgrades, following the events of Ghost in the Shell.

After a series of deaths due to malfunctioning gynoids - doll-like sex robots - Section 9 is asked to investigate. As the gynoids all malfunctioned without clear cause, the deaths are believed to be premeditated murders; Batou and Togusa are sent to investigate possible terrorist or political motives. Additionally, the most recent gynoid's remains show they all contained an illegal "ghost". Section 9 concludes human sentience is being artificially duplicated onto the dolls illegally, making the robots more lifelike, and possibly acting as a motive in the murders.

Called to a homicide scene, information warfare/technology specialist Ishikawa explains the victim is Jack Walkson, a consignment officer at gynoid company LOCUS SOLUS, who may have been killed by the Yakuza. A previous Yakuza boss was recently killed by a gynoid, so Ishikawa concludes Walkson was held responsible and killed in an act of revenge. Batou and Togusa enter a Yakuza bar to question the current boss, only to be threatened by the bar occupants. Batou opens fire, killing and wounding numerous gang members, including the cyborg that murdered Walkson. The current boss then admits his predecessor was somehow involved in LOCUS SOLUS, but insists he doesn't know how.

Entering a store on his way home, Batou is then seemingly warned by the Major and shot in the arm by an unseen assailant. Caught in a firefight, Batou nearly kills the store owner in confusion, but is subdued when Ishikawa appears. While having his damaged arm replaced, Batou is informed by Ishikawa that his e-brain was hacked, causing him to shoot himself and attack the store occupants. Ishikawa explains that Batou was hacked to try and cause further scandal following his Yakuza assault in an attempt to stop the Section 9 investigation.

Batou and Togusa then head for the mansion of Kim, a soldier-turned-hacker with an obsession with dolls. Seemingly dead, Kim soon reveals he "lives" inside the shell of a human-sized marionette, and discusses philosophy with his visitors. Kim admits ties to LOCUS SOLUS, divulging that the company has secret headquarters in international waters. Warned again by the Major, Batou realizes that Kim has secretly hacked into his and Togusa's e-brains, and is currently trapping them in a false reality. Resetting Togusa's brain, Batou subdues Kim, noting he knows Kim hacked his brain in the store.

Resolved to gather material evidence, Batou infiltrates the LOCUS SOLUS headquarters ship while Togusa remotely hacks its security systems using an unaware Kim as a proxy. The ship's security becomes aware of the hacking and retaliates with a virus that fries Kim's cyberbrain. Simultaneously, a hidden virus loads a combat program into the production-line gynoids, causing them to attack everyone aboard. As Batou fights to the ship's center, the Major then appears by controlling a gynoid remotely, helping Batou fight the gynoids and hack the ship's security.

Taking control of the ship, the Major then reveals to Batou the truth about the gynoids. Hiring the Yakuza to traffick young girls, LOCUS SOLUS duplicated their consciousnesses into the gynoids, giving them human "ghosts" to make them more realistic. Batou rescues a young girl from a "ghost dubbing" machine, and she explains that Jack Walkson, learning the truth about LOCUS SOLUS, promised to save the girls by tampering with the ghosting process; this caused the gynoids to murder their owners, allowing Walkson to attract police attention and indirectly kill the Yakuza boss. Despite Walkson's actions saving the girls, Batou objects that he also victimized the gynoids as well, causing them severe distress by giving them damaged ghosts. Having solved the case, Batou asks the Major if she's happy now, and she notes that she'll always be beside him on the network, before disconnecting from the gynoid.

In 2034, two years after the events of 2nd GIG, Public Security Section 9 is investigating a string of mysterious suicides by refugees from the Siak Republic. Chief Aramaki conducts a raid to arrest the refugee dictator only to find him already dead. In retaliation, a Siak operative plans a terrorist attack with a micromachine virus. Batou is sent to intercept the Siak operative and encounters Kusanagi, who is conducting her own investigation. Before they can apprehend the operative, he dies while attacking them. Kusanagi takes a case of virus ampules and warns Batou to stay away from the Solid State Society before leaving.

Section 9 operatives develop a theory that a hacker known as the Puppeteer or (Kugutsumawashi, literally 'Puppet Spinner', contrasted with the original film Puppet Master who was Ningyo-zukai, literally 'Doll Handler') is responsible for Siak agents' forced suicides and Togusa discovers sixteen kidnapped children who were intended carriers of the virus. All the children are listed as the children of Noble Rot Senior Citizens and Section 9 begins to suspect a larger conspiracy when they are part of a larger body of 20,000 children. Soon afterwards, the Puppeteer causes the disappearance of the sixteen children and Batou reveals to Togusa that he believes Kusanagi to be the Puppeteer. Section 9 next intercepts a Siak sniper that is targeting the supposed mastermind of Ka Rum's assassination. After his capture it is revealed the informant and the target are one in the same. The sniper says that the Puppeteer is a mechanism in the Solid State and cannot be killed.

Togusa tracks down one of the missing children, now assigned to an elderly man in the Noble Rot program. As Togusa tries to take the child, the man awakens and demands the child be left with him as he had named the child as his sole heir. He would rather give his assets to a child off the street and to protect them from abuse than have his assets turned over to the government upon his death. The man immediately dies after warning Togusa not to interfere with the will of the Solid State. Later, Togusa receives a call from the Puppeteer who hacks his brain and forces him to drive to a cyberbrain implant hospital with his daughter. The Puppeteer and Togusa converse, and Togusa is given the option to lose his daughter to the Solid State or commit suicide. He chooses suicide but is saved by Kusanagi who then identifies the Puppeteer as a rhizome formed by the collective consciousness of the Noble Rot Senior Citizens located in a welfare center.

Kusanagi temporarily rejoins Section 9 and confirms that Ito Munei, an influential politician, was behind the assassination of General Ka Rum. She also confirms that Munei and other politicians use it as a front for a brainwashing facility to create an elite group of pure-blooded Japanese to take control of the country in the next generation and lead it into Munei's vision of a new Golden Age. The Solid State decided to eliminate Munei for interfering in its plans, but Munei was ignorant of the origin of the abduction infrastructure.

A designer named Tateaki Koshiki steps forward, claiming he developed the Solid State system before committing suicide. Kusanagi dives into his cyberbrain and into Koshiki's trap, allowing him to hack her cyberbrain. The Puppetmaster reveals that he was spread across several egos until a collective consciousness emerged and developed into a Solid State, allowing him to move into the society beyond as the vanishing mediator. Later, Batou tells a recovering Kusanagi that the real Tateaki Koshiki used a cybernetic body and built the Solid State after he was hired by Munei. Kusanagi does not reveal that the Puppeteer was a fragment of herself, but Batou already knew from being linked to her during the dive. Batou concludes that the ultimate identity of the Puppeteer will remain unknown and that incident will be written off as a scandal.

In the near future, the vast majority of humans are augmented with cybernetics, enhancing various traits like vision, strength, and intelligence. Hanka Robotics, the world's leading developer of augmentative technology, establishes a secret project to develop a mechanical body, or "shell", that can integrate a human brain rather than an AI. Mira Killian, a young woman who is the sole survivor of the cyberterrorist attack which killed her parents, is chosen as the test subject after her body is apparently damaged beyond repair. Over the objections of her designer, Dr. Ouelet, Hanka CEO Cutter decides to use Killian as a counter-terrorism operative.

A year later, Killian has attained the rank of Major in the anti-terrorist bureau Section 9, working alongside operatives Batou and Togusa under Chief Daisuke Aramaki. The team successfully thwarts a terrorist attack on a Hanka business conference, and Killian destroys a rogue mechanical geisha after it murders a hostage. Killian, who has been experiencing hallucinations that Ouelet dismisses as glitches, is becoming increasingly bothered by how little she remembers about her past. After learning that the geisha was hacked by an unknown entity, known only as Kuze, Killian breaks protocol and "dives" into its AI for answers. The entity attempts a counter-hack, and Batou is forced to disconnect her. Using the information she was able to gather, the two trace the hacker to a Yakuza nightclub, where they are lured into a trap. The resulting explosion destroys Batou's eyes, and leaves Killian's body severely damaged. Cutter is enraged by Killian's actions, and threatens to have Section 9 shut down unless Aramaki keeps her in line.

Kuze tracks down Section 9's Hanka consultant, Dr. Dahlin, and kills her. The team links her murder to the deaths of other senior company researchers, and realize that Dr. Ouelet is the next target. Kuze takes control of two sanitation workers and sends them to kill Ouelet. Batou, now with cybernetic eyes, kills one of them while the repaired Killian subdues the other. During interrogation, Kuze briefly speaks through the surviving worker before compelling him to commit suicide. Togusa traces the hack to a secret location, where the team discovers a large number of humans mentally linked together as a makeshift signal network. Killian is captured, and Kuze reveals that he is a failed Hanka test subject from the same project that created Killian, otherwise known as 2571. He urges her to question her own memories before freeing her and escaping.

Killian confronts Ouelet, who admits there were 98 test subjects before Killian but she was the only one to survive the process and that her memories are fake implanted ones. Cutter has decided that Killian is too much of a liability, and orders Ouelet to euthanize her after she returns to Hanka Robotics. Instead, Ouelet gives Killian an address and helps her escape. Cutter kills Ouelet, but blames Killian, saying that she has gone rogue. He subsequently informs Aramaki and the team that Killian must be terminated by any means necessary.

Killian follows the address to an apartment occupied by a widowed mother, who reveals that her daughter, Motoko Kusanagi, ran away from home a year ago and was arrested, before taking her own life while in custody. Unable to process her emotions, Killian leaves and contacts Aramaki, who intentionally allows Cutter to eavesdrop on their conversation. Batou, Togusa, and Aramaki each eliminate Cutter's men trying to ambush them, while Killian follows her memories to the hideaway where Motoko was last seen. There, she and Kuze meet, and recall their past lives as anti-augmentation radicals who were abducted by Hanka for use as test subjects.

Cutter deploys a "spider-tank" to kill them, and Kuze nearly dies before Killian is able to tear off the tank's motor, losing her left arm in the process. Mortally wounded, Kuze offers to merge his "ghost" with Killian's before a Hanka sniper kills him. Batou and the team rescue Killian, while Aramaki executes Cutter with Killian's consent.

The next day, Killian, now repaired and embracing her true identity as Motoko, reconnects with her mother before returning to work with Section 9.