Set after the events of Gamera, a meteorite collides with the rocket transporting the creature to Mars. Now free, Gamera returns to Earth and destroys Kurobe Dam in Japan. At the same time three mercenaries are sent by Kano, a World War II veteran, to an island in the South Pacific to retrieve a huge opal he once found and hid in a cave. Despite warnings from the local villagers, the trio find and locate the opal, but one dies from a fatal scorpion sting. The second man, Keisuke, Kano’s younger brother, is betrayed by his fellow expeditioner Onodera and apparently killed in a cave-in.
En route back to Japan, Onodera accidentally leaves the opal exposed to an infrared light. The heat incubates the opal – actually an egg – and a lizard eventually hatches. Growing to enormous size very quickly, the lizard destroys the ship and Kobe Harbor. Keisuke, having survived the cave-in, awakens in the care of the villagers. He then returns to Japan with a village girl called Karen, who refers to the lizard as Barugon. Barugon wreaks havoc in Osaka with its freezing breath and stops the launching of the retaliative missiles with a rainbow emanation from its back. Barugon encounters Gamera and the two battle, with Gamera eventually being frozen solid.
In the meantime, while debating with Kano on how to recover the opal, which he still believe to be aboard the sunken ship, Onodera inadvertently blurts out that he killed his two companions, and then murders both Kano and Kano’s wife to cover up his crime. After finding Onodera, Keisuke and Karen subdue him and leave him tied up in his home. Keisuke and Karen travel to the Japanese defense ministry, and suggest a plan using a huge diamond to lure Barugon into a lake to drown. The plan fails because the diamond’s radiation proves to be not enough. Another attempt by irradiating the diamond with additional infrared radiation almost succeeds, until Onodera, having been released and informed of the diamond by his wife, steals the gem. Both he and the diamond, however, are immediately devoured by Barugon.
Keisuke discovers that mirrors are not affected by Barugon’s rainbow beams, so the military devises a plan to reflect its own rainbow emanation back at it with a giant mirror. Barugon is wounded by its own blast, but despite prompting it cannot be goaded into repeating its mistake. Gamera thaws outs and attacks Barugon once again, and after a destructive battle it drowns Barugon in Lake Biwa, then flies away. Remorseful over the disaster his greed has caused, with his brother now dead, and having found love with Karen, Keisuke decides to make a fresh start on the island where it all began.