Tony Stark reminisces a party on New Year’s Eve in 1999 where he is approached by Maya Hansen, inventor of Extremis, an experimental drug capable of regenerating lost body parts resulting from dangerous injuries. When Aldrich Killian walks up to Tony to offer him a position in his company; Advanced Idea Mechanics, Tony turns him down leaving him humiliated.
Years later, just a few months after the battle of New York, Tony begins to suffer from panic attacks caused by his experiences during the battle. His constant unrest causes him to devote a lot of time to building many Ironman suits and this leads to a rift with his girlfriend.
While this happens, a chain of bombing incidents perpetuated by a terrorist who calls himself the Mandarin has U.S Intelligence agencies on their toes as they barely find any forensic evidence to aid their investigations.
Tony is provoked to issues a broadcasted threat on national TV when his chief of security; Happy Hogan is injured in one of the Mandarin’s bombings. This causes the Mandarin to retaliate by bombing Tony’s home with missiles from helicopters while Tony, Maya and Hansen are in the building.
May and Hansen survive the bombs and Tony flees in one of his Ironman suits, piloted by his artificial intelligence J.A.R.V.I.S. which takes him to the suburbs of Tennessee. This is based on a flight plan from Tony’s investigation into the Mandarin.
However, since Tony’s suit uses up too much energy during the attack, there is barely enough power to help him return to California causing everyone to think him dead. Tony eventually meets a ten year old boy; Harley and also looks into a local explosion that seems to be linked to the Mandarin.
His investigation reveals that the explosions were actually caused by soldiers who were administered Extremis but were incompatible with the Extremis treatment which causes them to combust. The explosions are blamed on terrorists in order to cover up the major flaws of the Extremis drug.
Tony eventually has a first encounter with Extremis when he is attacked by agents Brandt and Savin attack him. Meanwhile, Killian tricks American Intelligence Agencies into discovering the location of the Mandarin in order to lure War Machine now known as Iron Patriot, so he can steal his suit of armor.
Harley is able to help Tony discover the Mandarin’s true location which they trace to Miami. Tony heads there and attacks the Mandarin’s base of operations only to discover that the Mandarin is an English actor known as Trevor Slattery. Trevor claims to be unaware of the violence being perpetuated.
Killian on the other has administered the Extremis drug on himself to cure his disability and has synthesized it for use on injured war veterans. He finally tells Tony of how he is the real Mandarin and how he used Slattery as a cover.
Killian captures Tony and eventually reveals that he has captured Pepper too. He subjects Pepper to the Extremis drug as a way of forcing Tony to help him to perfect the Extremis drug and hence save Pepper. Hansen eventually feels remorse for her action and tries to challenge Killian who ends up killing her.
Meanwhile, Tony is able to escape and meet up with Rhodes when he realizes that Killian is about to attack President Ellis who is aboard Air Force One at the time. He sets out to stop the attack but is only able to save surviving crew members and passengers as Killian abducts the president and destroys the aircraft.
Killian is eventually traced to an abandoned oil tanker where he is about to kill President Ellis on live television and have the vice president assume control of the country whilst doing his bidding. In return, Killian is to give the Vice President the Extremis cure for his younger daughter’s disability.
Tony heads off to save Pepper while Rhodes heads off to save the president. However, when Killian’s Extremis powered army become too much for Tony to handle, he summons his Ironman suits controlled by J.A.R.V.I.S. to assist him. Rhodes is able to rescue the president and Tony realizes that Pepper has survived the Extremis process.
Unfortunately, a rig comes crashing around them before he is able to reach her and she falls to what seems to be her death. An angry Tony faces off against Killian and traps him in an Ironman suit which self-destructs but this is not enough to kill Killian as he survives the explosion.
Pepper, who apparently developed Extremis powers is able to survive the fall, she intercepts and eventually kills Killian. When the battle is over, Tony instructs J.A.R.V.I.S. to destroy all his Ironman suits as a way of showing Pepper that he intends to spend more time with her.
Meanwhile, the vice president and Slattery get arrested. Tony is able help Pepper get her Extremis powers under control, he later has a surgery to remove the shrapnel close to his heart. The surgery is successful and Tony throws his old arc reactor over a cliff into the sea. He finally reminds himself that he would always be Ironman as the film ends.
A post credit scene shows Tony jolt Dr. Bruce Banner awake. Apparently, Dr. Banner has dozed off from listening to Tony’s narration about his story.