As a child in Lugash, Princess Dala receives a gift from her father, the Maharajah: the "Pink Panther", the largest diamond in the world. This huge Pink diamond has an unusual flaw: looking deeply into the stone, one perceives a tiny discoloration resembling a leaping panther. Twenty years later, Dala has been forced into exile following her father's death and the subsequent military takeover of her country. The new government declares her precious diamond the property of the people and petitions the World Court to determine ownership. However, Dala refuses to relinquish it.
Inspector Clouseau (Peter Sellers) of the National Police (France), the French national police, is called to the country home of millionaire Benjamin Ballon (George Sanders) to investigate the murder of his chauffeur, Miguel Ostos. The chauffeur was having an affair with one of the maids, Maria Gambrelli (Elke Sommer), and attacked her in her bedroom after she broke off with him. Miguel was shot and killed in her bedroom and Maria was found with the smoking gun in her hand, but claims no knowledge of how it got there as she maintains she was knocked unconscious. All evidence points to Maria as the killer, but Clouseau is convinced of her innocence because he has developed an immediate attraction to her. Realizing Clouseau has been inadvertently assigned to a high-profile case, Commissioner Dreyfus (Herbert Lom) has him removed and personally takes charge of the investigation.
An organized crime wave strikes across Europe. Suspecting a mole within Scotland Yard, the prime minister brings Clouseau in to solve the case. Clouseau foils two assassination attempts but is subsequently kidnapped. The gang uses him to make masks of his face which they later use to commit a series of daring bank robbery across Switzerland. Eventually, Clouseau foils the plot and unmasks the traitor within the Yard.
In the fictional country of Lugash, a mysterious thief seizes the Pink Panther diamond and leaves a white glove marked with a gold-tinted "P". With its national treasure once again missing, the Shah of Lugash requests the assistance of Inspector Clouseau of the Sûreté, as Clouseau had recovered the diamond The Pink Panther (1963 film). Clouseau has been temporarily demoted to beat cop by his boss, Chief Inspector Charles Dreyfus, who despises him to the point of obsession, but the French government forces Dreyfus to reinstate him. Clouseau joyously receives the news after fending off a surprise attack from his servant Cato, who had been ordered to do so to keep the Inspector on his toes, and duly goes to Lugash.
At a psychiatric hospital, former Chief Inspector Charles Dreyfus is largely recovered from his obsession to kill the new Chief Inspector Jacques Clouseau and is about to be released when Clouseau, arriving to speak on Dreyfus' behalf, within minutes drives Dreyfus insane again. Dreyfus later escapes from the hospital and once again tries to kill Clouseau by planting a bomb while the Inspector (by periodic arrangement) duels with his manservant Cato. The bomb destroys Clouseau's apartment and injures Cato, but Clouseau himself is unharmed, being lifted from the room by an inflatable disguise. Deciding that a more elaborate plan is needed to eliminate Clouseau, Dreyfus enlists an army of criminals to his cause and kidnaps nuclear physicist Professor Hugo Fassbender and the Professor's daughter Margo, forcing the professor to build a "doomsday weapon" in return for his daughter's freedom.
Philippe Douvier (Robert Webber), a major businessman and secretly the head of the French Connection, is suspected by his New York Mafia drug trading partners of weak leadership and improperly conducting his criminal affairs. To demonstrate otherwise, Douvier's aide Guy Algo (Tony Beckley) suggests a show of force with the murder of the famous Chief Inspector Jacques Clouseau (Peter Sellers).
When the famous Pink Panther diamond is stolen again from Lugash, Chief Inspector Clouseau (Peter Sellers) is called on the case despite protests by Chief Inspector Dreyfus (Herbert Lom). While on the case, Clouseau is pursued by the Mafia. Clouseau first goes to London to interrogate Sir Charles Litton (having forgotten that he lives in the South of France). Traveling to the airport, he accidentally blows up his car trying to fix a pop-out lighter, but mistakenly believes it an assassination attempt, and disguises himself in a heavy cast on the flight, which causes complications in the air and on land. He then is led to an awkward introduction to the Scotland Yard detectives at Heathrow. Meanwhile, Dreyfus learns from Scotland Yard that Libyan terrorists have marked Clouseau for assassination; but permits him to continue. Heretofore at the hotel, Clouseau has a miscommunication with the hotel clerk (Harold Berens) and gets knocked out a window several times (even pulling the clerk right through the wall a la switchboard), trying to get his "message" from Dreyfus.
In Lugash, the fabled Pink Panther diamond is stolen. A mysterious woman looking to procure the priceless gem has a tête-à-tête with a man regarding price. Suddenly, Clouseau (having disappeared inexplicably on a plane flight in the Trail of the Pink Panther) bursts in. The woman shoots the man, then points the gun at Clouseau. His fate is a mystery. Meanwhile, his former superior, Chief Inspector Charles Dreyfus (Herbert Lom), is pressured to oversee Operation Paragon and utilize Interpol's fictitious Huxley Aldous Huxley 600 computer Aldous to find the world's greatest detective to solve the crime.
Princess Yasmin of Lugash (Debrah Farentino) is abducted in French territorial waters off the coast of Nice by terrorists led by a mercenary named Hans (Robert Davi) in order to force her father to abdicate and allow her disgraced stepmother's lover, a military general with terrorist ties to an unfriendly neighboring kingdom, to claim the throne. Police Commissioner Dreyfus (Herbert Lom) is tasked with solving the case of the kidnapped princess. While investigating her disappearance in the South of France, he has a run-in with the kidnappers, and a local ''gendarme'', named Jacques Gambrelli (Roberto Benigni). Gambrelli opens the rear doors of the kidnapper's van and unknowingly spies the Princess who he believes is the driver's sister en route to the hospital.
Chief Inspector Charles Dreyfus narrates a flashback of a FIFA World Cup semi-final match between France national football team and China national football team. French coach Yves Gluant enters the stadium, wearing the Pink Panther diamond ring, which is seen by his team as a symbol of pride and victory. He kisses his girlfriend, pop star Xania, and whispers something to her. After France wins the game in Golden goal, Gluant is killed by a poison dart, with the Pink Panther diamond nowhere to be found.
At the beginning of the film, Chief Inspector Dreyfus calls Clouseau to his office to show his new security system, that links to the elite “Black Berets”. When Clouseau discovers the security system, thinking they are being listened by enemies, he destroys it all. Immediately the Black Berets, show up and demand a password, a signal that everything is alright. Dreyfus claims he does not know it but Clouseau claims it is Zhambburrgier(hamburger), a joke from the The Pink Panther (2006 film)