Family man Wade Porter (Stephen Dorff) is living the American Dream with his girlfriend Laura (Marisol Nichols) and their son Michael: they have a nice house, he has just raised a loan to make his company grow and they are going to get married. However their dream becomes a nightmare when Wade unintentionally kills a burglar that had broken into their house in the middle of the night on his lawn. Due to the fact that Wade attacked the intruder and killed him outside of the house, he is tried for murder, and accepts a deal proposed by the prosecutor, being sentenced to three years in prison. In the county jail, Wade gets into a brawl the first night after being attacked by an inmate in the community cell. After his sentencing is given, he is transferred to Corcoran State Prison. On the bus ride over, Danny Sampson, leader of the local Aryan Brotherhood, kills a man and hides the knife with a young Aryan member sitting behind Wade. In a moment's panic, the young man hides the knife under Wade and forces him to deny knowledge of the knife. As a result, Wade is sent to solitary confinement until the mess can be sorted out. Upon further investigation by Lieutenant Jackson (Harold Perrineau), Jackson is convinced Wade is an accessory to murder, and decides to send Wade to the Security Housing Unit (SHU), of which Jackson is the commanding officer. Life is tough for Wade in the SHU. In addition to 23-hour lockdown days, and the inability to see his family at first, the 1-hour yard days consist of fights, to which the guards bet on. Scared and desperate, Wade initially groups with the Aryans, even going so far as to shave his head. His cell-mate John Smith (Val Kilmer) who was serving a life sentence after avenging the death of his family befriends Wade and gives helpful advice and hope to him.

Lee Reyes plays Hiro, Master Tetsu's (Pat Morita)'s grandnephew, who is the last of the true ninja. His granduncle sends him to apprentice under Joe Kastle, (David Bradley), who is the American Ninja, to gain experience. Hiro cares only for his Game Gear and has little interest in the ways of the ninja. Joe in addition to being the American Ninja also owns a boat. In order to meet the American Ninja, Lisa (Anne Dupont) "varnishes" his boat when in fact she was asked to "tarnish" it. While having dinner Lisa is kidnapped by Viper (James Lew) and a host of multi-colored ninjas, and so the American Ninja and Hiro sneak onto a plane to Venezuela to save her. It is revealed that Lisa is the daughter of a scientist, under the employ of Glock (Clement von Franckenstein), who is being forced to develop a nerve gas for a Latin American despot. Ninja fighting ensues. Before the American Ninja and Hiro can rescue Lisa and her father from "Viper", the mysterious ninja that appears and reappears with a puff of smoke, the American Ninja must reawaken the ancient ninja tradition within Hiro with a 5 minute training montage. Viper is defeated in a climactic airplane battle scene, and Joe returns to Los Angeles to kiss Lisa on the bow of his boat.