The main plot of RoboCop 2 is the title character's struggle to regain the humanity that many characters in the film felt he lost when he was turned into RoboCop (a cyborg combining the brain and other tissue from the corpse of a murdered police officer, Alex Murphy, with a primarily robotic body) in the first film.

One sub-plot, introduced at the beginning of the movie, concerns the consequences of RoboCop's realization of his former identity, and his impotent attempt to reach out to his family. Having found out where they moved after he was killed, he drives by their house, greatly distressing his former wife. She eventually complains and threatens to sue OCP, so they allow her to see him. Beforehand, Holzgang (Jeff McCarthy), an OCP lawyer, insistently reminds RoboCop that he could never have his life back as Alex Murphy and that he is a machine. Upon seeing his wife, he tells her that the face was placed on him to honor the dead Alex Murphy and that he is just a machine. Though impassive in the face of her sadness and confusion, he watches intently as she leaves his life forever.

The overarching plot of the movie concerns OCP's attempt to cause the old City of Detroit to default on its debt, so that OCP can foreclose, take over the city government, demolish the old city, and put up a planned community (Delta City) in its place. As part of this plan, it forces a police strike by terminating their pension plan. As RoboCop cannot go on strike, this merely increases his duties as the city sinks further into chaos and terror.

Meanwhile, the Security Concepts division of OCP continues to sink tens of millions of dollars into the development of a more advanced and stronger cyborg -- a "RoboCop 2." Each project ends up a disaster; once the transformed officers realize what they've become, they immediately turn suicidal (one shoots the scientists around him before killing himself). Murphy only survived and adapted because of his exceedingly strong sense of duty to the law. Therefore, the scientists come up with a new idea -- a criminal with a similar overcoming desire: a desire for power and immortality, regardless of the cost.

In this movie, RoboCop's primary mission is to deal with the distribution of a powerful designer drug named "Nuke". The primary distributor, Cain (Tom Noonan), appears to have a messiah complex due to his own drug abuse; he believes that Nuke is the way to paradise, and wants to distribute it to the entire city. He is assisted by his girlfriend Angie (Galyn Gorg); a foul-mouthed yet competent ten-year old boy, Hob (Gabriel Damon), whom RoboCop cannot shoot because of his age; and Officer Duffy, a corrupt police officer who is controlled by his addiction to Nuke.

Having learned of Cain's involvement in the production of Nuke, RoboCop confronts him and his gang at an abandoned construction site, in which he is rendered immobile and disassembled; the pieces are left in front of the striking officers of the Detroit Police. OCP is reluctant to foot his massive repair costs, and considers shutting him down for good, despite protests from the RoboCop project members and fellow police officers. Later Cain has Duffy tortured to death for telling Robocop where the hideout was.

However, RoboCop is saved when Dr. Juliette Faxx (Belinda Bauer), an OCP psychologist who has taken charge of the new RoboCop team, argues for his importance as a figure of the community; through lobbying a panel of private citizens, she creates a list of over 300 new directives to be added to his program. Though resistant at first, Murphy is ultimately powerless to refuse the new commands and is rendered unable to take aggressive action against criminals, even to defend himself. Eventually examined by the original RoboCop team at the police department, a suggestion on how the directives might be cleared leads him to shock himself with electrical current, clearing all the directives (even the initial four). He then declares war on Cain, immediately leading the striking officers off the picket line to attack Cain's hideout.

The plots cross when Cain is badly injured in a battle with RoboCop. Though Angie wants to rescue Cain from the hospital, Hob considers him already dead and moves to take control of the Nuke distribution. Faxx, having decided that Cain has the perfect mindset for the new cyborg, arrives at the hospital and switches off his life support, calling for an immediate brain removal and transplant. Displaying the new RoboCop to the head of OCP, Faxx demonstrates how he may be pacified through a canister of pure Nuke, the only way the pain of Cain's new existence can be dulled.

Meanwhile, Hob, as the new leader of the drug cartel in Old Detroit, arranges a secret meeting with the desperate mayor (Willard E. Pugh), offering to bail out the city's debt to OCP -- but only if the mayor agrees to a hands-off policy regarding the distribution of Nuke. Since this would hinder OCP's attempts to take over the city, the corporation sends RoboCop 2 in for the ostensible purpose of breaking up the drug operation, while actually ordering the cyborg to kill all parties involved. While the mayor escapes through a sewer drain, both his and Hob's bodyguards are slaughtered, as well as Angie and Hob. RoboCop arrives late on the scene, in time to comfort a dying Hob and be told of RoboCop 2's actions.

The movie ends with a climactic battle between RoboCop and RoboCop 2 during the unveiling of Delta City and the new cyborg at a press conference. The OCP President unwittingly presents a canister filled with Nuke; Cain escapes control and begins to run amok, destroying the control device that arms his weapons, then opening fire on the crowd in desperation for the canister of Nuke. RoboCop, arriving just beforehand and watching to see if Hob was right about RoboCop 2, returns fire.

The two cyborgs battle back and forth throughout the building, eventually falling off the roof and into an underground facility; RoboCop 2 attacks with a welder, but RoboCop directs it towards a gas pipe, causing a large explosion. RoboCop pulls himself up to the street through the hole blown in the pavement, and heads back into the OCP building, his intent unknown. RoboCop 2 emerges in similar fashion, engaging the police in a firefight; Lewis rams him into a wall with an APC, doing little good.

RoboCop then emerges with the canister of Nuke from the press conference. Upon seeing the canister, RoboCop 2 immediately ceases fire and eventually takes the Nuke. While distracted, RoboCop jumps onto his back, punches his way through to Cain's brain, and smashes it onto the pavement.

The Chairman of OCP, executive Johnson, and lawyer Holzgang discuss OCP liability for the massacre, and decide to scapegoat Faxx, claiming that she acted without company support in designing RoboCop 2. Holzgang is confident that he can find evidence against Faxx "whether it exists or not."

In the final scene of the film, Lewis complains about how the OCP executives will escape legally unscathed. RoboCop, removing his visor with a socket wrench, replies: "Patience, Lewis. We're only human."

This film received mixed reviews from critics and fans of the first film. While the special effects and action sequences are widely praised, a common complaint was that the film did not focus enough on RoboCop and his partner Lewis and that the film's human story of the man trapped inside the machine was ultimately lost within a sea of violence. In his review, Roger Ebert said "Cain's sidekicks include a violent, foul-mouthed young boy (Gabriel Damon), who looks to be about 12 years old but kills people without remorse, swears like Eddie Murphy, and eventually takes over the drug business... The movie's screenplay is a confusion of half-baked and unfinished ideas... the use of that killer child is beneath contempt...".

Additionally, the movie "reset" RoboCop's character by turning him back into the monotone-voiced peacekeeper seen early in the first film (despite the fact that by the end of the first film, he had regained his human identity and speech mannerisms). Many were also critical of the child villain Hob; David Nusair of reelfilm stated, "That the film asks us to swallow a moment late in the story that features Robo taking pity on an injured Hob is heavy-handed and ridiculous (we should probably be thankful the screenwriters didn't have Robocop say something like, 'Look at what these vile drugs have done to this innocent boy')."

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