Wealthy new parents Tucker and Esther Cobblepot (Paul Reubens and Diane Salinger) are burdened with a deformed and violent infant son. One snowy night, they dispose of him by tossing him, concealed in a basket, into a stream. The basket floats down through Gotham City's sewers and eventually arrives at the underground penguin habitat at the Gotham City Zoo, which had been out of business for some time.
33 years later, Gotham is preparing festivities for the Christmas season. Max Shreck (Christopher Walken), the corrupt owner of a company whose factories emit a dangerous amount of toxic waste, is nonetheless a celebrated local figurehead.
Shreck joins the Mayor (Michael Murphy) at a city gathering to make a short speech, but a gang of grotesque circus performers descends upon the crowd.
They attempt to kidnap Shreck, but the sudden arrival of Gotham's trusted hero Batman (Michael Keaton) sends them scurrying away.
Soon afterward, the circus gang manages to capture Shreck when he is alone in a dark alley. They take him through the sewers to the lair of their leader, the mysterious Penguin (Danny DeVito), who is the hideous Cobblepot child now spending his adulthood in the abandoned zoo where his basket had landed so many years before.
The Penguin attempts to blackmail Shreck by threatening to expose his underhanded business dealings to the citizens of Gotham. Having no knowledge of his past life or true identity, Penguin sees Shreck as a potential vehicle for a chance to live on the surface and be accepted by others, thus giving him the freedom to track down his family. Shreck reluctantly agrees to work with the Penguin.
Shreck's awkward and overworked secretary, Selina Kyle (Michelle Pfeiffer), lives a lonely single life in a small apartment, with her only regular company being an alley cat who comes through the window every night for a saucer of milk. While working after-hours in the office, she accidentally stumbles across proof of Shreck's crooked business schemes.
Shreck arrives and, despite Selina posing no blackmailing threat, attempts to kill her by pushing her out the window. She falls several stories into the alley below, but is strangely resurrected when a swarm of stray cats surrounds her. In a daze, she returns home and trashes her apartment.
She makes a skin-tight black catsuit from an old jacket and attaches metal claws to her fingertips, thus reinventing herself as "Catwoman." Meanwhile, the Penguin prepares to make his entrance into society. During a press conference, a circus gang member appears and snatches the Mayor's infant son from his mother's arms. After the gang member disappears down a manhole, the Penguin rises to the surface holding the unharmed baby.
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