Tony heads to Monaco for some much needed R & R. At a pre reception before the Monaco 500, where Stark Industries is sponsoring a driver, Tony's greeted by his favorite "Vanity Fair" reporter Christine Everheart, who wants Pepper for the cover of the next issue introducing her as the new Stark Industries C.E.O., and of course Justin Hammer also happens to be there.
They also greet Tesla Motors CEO Elon Musk who wants a panel at the Stark Expo to showcase his latest invention. In the bathroom, it's learned that the palladium in Tony's chest is slowly spreading, and his arc reactor can barely take the punishment. Tony decides that he's going to be driving the Stark Industries car instead of the driver that was already pre selected.
While racing his Formula 1 car in Monaco, Stark is attacked by Ivan Vanko, who has constructed a miniaturized arc reactor of his own. It is contained in a chest harness with two attached whips, powered by the reactor's energy. Vanko uses the whips to create a massive car crash in the race and goes after Stark.
As Vanko is wrecking havoc on the track, Happy and Pepper rush to deliver the briefcase Happy is put in charge of to Tony. Vanko uses his electric whips to completely destroy the Rolls Royce Phantom that Happy and Pepper are in, and after repeated ramming attempts, Pepper finally manages to give Tony the briefcase. What's inside the briefcase is another Iron Man suit.
This time, Tony is able to defeat Vanko by manually pulling out the Arc Reactor battery that powers his whips. The entire crowd is stunned at what they've just witnessed, but not Justin Hammer, who believes that Vanko can be put to better use.
Stark confronts Vanko in prison and Vanko asks Tony what it feels like to be a dead man and that palladium in the chest is a very painful way to die. Stark tells Vanko that makes two of them. In prison Vanko is given a meal consisting of chicken and mashed potatoes along with a note telling him to enjoy the potatoes.
Vanko and another prisoner are wearing uniforms with the same identification. Vanko immediately kills the prisoner as well as a guard on his way out the door, and sets the explosive device contained in the potatoes and as he makes his escape, he's bagged by two guards and taken away.
It's then revealed that Justin Hammer purposefully broke Vanko out of prison as they both share the same common hatred for Tony. Hammer knows Vanko needs his resources to do this, and Vanko obliges. Hammer then hires Vanko to build suits based on existing designs. Vanko tells Hammer they are doing everything wrong.
On the plane back home, Tony and Pepper are watching the aftermath of the events that took place and are watching a rather angry Senator Stern unload his frustrations with Tony on The O'Reilly Factor. Stern is saying that Tony Stark lied to the Senate Armed Forces Committee, and that he's in danger of being arrested on felony perjury charges.
The reason being is that he told the Senate that other countries, as well as Hammer Industries, were 20 years away from having anything that remotely resembled Iron Man. But Vanko surprised everyone by making an exact copy of the Arc Reactor.
Tony presents Pepper with a gourmet meal and is going to tell her the truth, but they have an awkward moment as Pepper knows that something is up and that Tony isn't telling her the whole truth.
Back home, Tony is using JARVIS to conduct investigations into Ivan Vanko. It's revealed that Vanko's father Anton Vanko was Howard Stark's partner and one of the co founders of Stark Industries. Howard Stark found out that Vanko was conspiring to sell weapons to the Soviet Empire and had him arrested for treason and deported to Russia.