A pharmaceutical company captures King Kong and brings him to Japan, where he escapes from captivity and battles a recently released Godzilla. (uploader's comment: "As if that is not one of the coolest plots EVER!!!" )
Mr. Tako, head of Pacific Pharmaceuticals, is frustrated with the television shows his company is sponsoring and wants something to boost his ratings. When a doctor tells Tako about a giant monster he discovered on the small Faro Island, Tako believes that it would be a brilliant idea to use the monster to gain publicity. Tako immediately sends two men, Sakurai and Kinsaburo, to find and bring back the monster from Faro.
Meanwhile, the American submarine Seahawk gets caught in an iceberg. Unfortunately, this is the same iceberg that the mutant dinosaur Godzilla was trapped in by the Japanese Self-Defense Forces back in 1955, and the submarine is destroyed by the monster. As an American rescue helicopter circles the iceberg, Godzilla breaks out and heads towards a nearby Arctic military base, attacking it. The base itself is ineffective against Godzilla. He continues moving inland, razing the base to the ground, and sends the tank armory up in flames. Godzilla's appearance is all over the press, making Tako furious.
Meanwhile on Faro Island, a giant octopus (known as the Oodako) attacks the native village. The mysterious Faro monster is then revealed to be the giant gorilla, King Kong and he arrives and defeats the octopus.King Kong then drinks some red berry juice, becomes intoxicated, and then falls asleep. Sakurai and Kinsaburo place Kong on a large raft and begin to transport him back to Japan. Back at Pacific Pharmaceuticals, Tako is finally glad because Kong is now all over the press instead of Godzilla. Mr. Tako arrives on the ship transporting Kong, but a JSDF ship stops them and orders them to return Kong to Faro Island. Godzilla had just come ashore in Japan and destroyed a train, and the JSDF doesn't want another monster entering Japan. Unfortunately, during all this, Kong wakes up from his drunken state and breaks free from the raft. Reaching the mainland, Kong meets up with Godzilla in a valley. Tako, Sakurai, and Kinsaburo have difficulty avoiding the JSDF to watch the fight. Eventually they find a spot. Kong throws some large rocks at Godzilla, but Godzilla shoots his atomic breath at Kong's chest, forcing the giant ape to retreat.
The JSDF desperately tries everything to stop Godzilla from entering Tokyo. In a fielded area outside the city, they dig a large pit laden with explosives and lure Godzilla into it, but Godzilla is unharmed. They next string up a barrier of power lines around the city filled with a 1,000,000 volts of electricity (300,000 volts had been tried in the first film, but failed to turn the monster back). The electricity is too much for Godzilla, who then moves away from the city towards the Mt. Fuji area. Later at night, Kong approaches Tokyo. He tears through the power lines, feeding off the electricity which seems to make him stronger. Kong then attacks Tokyo and holds Fumiko, a woman from a train, hostage. The JSDF explode capsules full of the berry juice from Faro Island and knock out Kong, while Sakurai rescues Fumiko. The JSDF then decide to transport Kong via balloons to Godzilla, in hope that they will fight each other to their deaths.
The next morning, King Kong is dumbo-dropped onto the summit of Mt. Fuji from the balloon air-lift, meets up with Godzilla and the two begin to fight. Godzilla has the advantage at first, eventually knocking Kong down with a vicious drop kick, and battering the gorilla unconscious with powerful tail attacks to his forehead. When Godzilla tries to kill Kong with his atomic breath, an electrical storm arrives and revives Kong, giving him the power of an electric grasp. The two begin to fight again, with the revitalized Kong swinging Godzilla around by his tail, shoving a tree into Godzilla's mouth, and judo tossing him over his shoulder. The brawl between the two monsters continues all the way down to the coastline. Eventually the monsters tear through Atami Castle and Kong drags Godzilla into the Pacific Ocean. After an underwater battle, only King Kong emerges from the water and begins to slowly swim back home to Faro Island.