In 2179, a fire starts aboard the Colonial Marine spaceship Sulaco. The computer launches an escape pod containing Ellen Ripley, the young girl Newt, Hicks, and the damaged android Bishop; all four are in cryonic stasis. Scans of the crew's cryotubes show a queen facehugger attached to one member. The pod crash-lands on Fiorina "Fury" 161, a foundry facility and penal colony inhabited by male inmates with double-Y chromosome syndrome, a genetic mutation which gives the afflicted individual a predisposition for antisocial behavior. The inmates recover the crashed pod and its passengers. The same facehugger is seen approaching inmate Thomas Murphy's dog, Spike.
Ripley is awakened by Clemens, the prison doctor, who informs her that she is the sole survivor. She is warned by the prison warden, Harold Andrews, that her presence may have disruptive effects. Ripley insists that Clemens perform an autopsy on Newt, secretly fearing that Newt may be carrying an alien embryo. Despite protests from the warden and his assistant Aaron, the autopsy is conducted and no embryo is found. The bodies of Newt and Hicks are cremated.
Elsewhere in the prison, a quadrupedal alien bursts from Spike. Growing to full size, the alien kills Murphy, Boggs, and Rains and returns outcast prisoner Golic to his previously psychopathic state Golic dubs the alien "Dragon". Ripley finds the damaged Bishop in the prison's garbage dump. Just as she is leaving the area, she is cornered by four inmates and almost raped; inmate leader Dillon intervenes and beats the others with a crowbar while Ripley punches the last man in the face. Ripley returns to the infirmary and re-activates Bishop, who confirms that a facehugger came with them to Fiorina in the escape pod. Ripley informs Andrews of her previous encounter with the xenomorphs and suggests everyone work together to hunt down and kill it. The highly skeptical Andrews does not believe her story, and explains that even if she were telling the truth, the facility is without weapons; their only hope is the rescue ship being sent for Ripley by the Weyland-Yutani Corporation.
The alien ambushes Ripley and Clemens in the prison infirmary, killing him, and almost slays Ripley, but then mysteriously spares her and retreats. Ripley then rushes to the cafeteria to warn the others. Andrews orders Aaron to take her back to the infirmary, but the warden himself is dragged into the vents and killed by the monster. Ripley rallies the inmates and proposes they pour flammable toxic waste into the ventilation system and ignite it to flush out the extraterrestrial. However, its intervention causes a premature explosion and several inmates are killed. With Aaron's help, Ripley scans herself using the escape pod's medical equipment and discovers the embryo of a xenomorph queen growing inside her. She also discovers that Weyland-Yutani hopes to turn the aliens into biological weapons.
Deducing that the alien will not kill her because of the embryo she carries, Ripley begs Dillon to kill her; he agrees only if she helps the inmates kill the alien first. They form a plan to lure the alien into the foundry's molding facility, trap it via a series of closing doors, and drown it in molten lead. The bait-and-chase plan results in the deaths of all the remaining prisoners except Dillon and Morse. Dillon remains in the mold as he allows himself to be killed by the alien as Morse pours the molten lead onto them. Although the alien is covered in molten metal, it escapes the mold but Ripley activates the fire sprinklers, causing its molten metal exoskeleton to cool rapidly and shatter, blowing it apart.
The WeylandYutani team arrives, including scientists, heavily armed commandos and a man who looks identical to Bishop, who explains that he is Bishop's creator. He tries to persuade Ripley to undergo surgery to remove the queen embryo, which he falsely claims will be destroyed. Ripley refuses and steps back onto a mobile platform, which Morse positions over the furnace. The WeylandYutani team shoot Morse in the leg in an attempt to stop him; Aaron, believing the Bishop look-alike is an android, strikes the man with a wrench and flees just before the commandos shoot Aaron, killing him. Ignoring Bishop's pleas to give them the embryo, Ripley throws herself into the furnace. The facilities are closed down and almost all was forgotten. Morse, the sole survivor, is led away as Ripley's recording from the first film plays for the final time in the EEV.