A bomb has gone off in Newport City, killing a major arms dealer who may have ties with the mysterious 501 Organization. Public Security official Daisuke Aramaki, hires Motoko Kusanagi to investigate, but on the case with her are "Sleepless Eye" Batou, who believes Kusanagi is a criminal, Detective Togusa of the Niihama Police who is investigating a series of prostitute murders he believes are related to the incident, and Lieutenant Colonel Kurtz of the 501 Organization who also wishes to keep an eye on Kusanagi. Kusanagi is subjected to memory loss that inhibits her progress in the case, and it is later revealed that she was implanted with false memories, a product of a failed "Ghost Hack" she had performed on the money-laundering conspirator Mamuro, who was infected with a memory virus. Once she realizes that the 501 Organization was involved with the scandal, she leaves the unit, now in legal possession of her own prosthetic body. She is met by Aramaki, who proposes the formation of a new unit within Public Security.^[11][12]

A former soldier from the Qhardistani War named Kazuya Soga is being tried for "crimes against humanity" by the Japanese government. To prove his innocence, Soga sends his men to retrieve evidence hidden somewhere in a web of information called "Pandora's Box". This team is led by the former Ranger Batou, who also employs intel officer Ishikawa and Borma as well as the rest of Soga's men. Major Kusanagi is sent to investigate the matter and results in an all-out war between Public Security and Soga's group. Along the way, she is allied with Paz as well a female American Special Forces member named "VV". Saito is also involved, but changes sides depending on who offers more money. After the Kusanagi invades Soga's cyberspace, she discovers that he was affected by a memory-falsification virus that covered up the truth of what happened in the war, in which he indeed killed the refugees who were in fact guerrillas. When he learns the truth, he decides to kill himself, but the virus he tried to upload to Pandora's Box is still being carried through by none other than VV. With the help of Batou, VV is killed before she can complete the transfer and is revealed to be an android when the battle ends. Kusanagi promises Batou that he may be taken out of incarceration, but only if he decides to join her team.^[13]

Togusa investigates the death of Detective Naoharu Mizuki, killed by an explosion at a dam while holding a suitcase containing prosthetic legs from the Mermaid's Leg corporation.^[15] Togusa questions Dr. Zhinzhee Bekka Arr Thied, head of a Kuzan water company owning the dam, and also a Qhardi, but is told to back off. Meanwhile, Major Kusanagi's team of Batou, Ishikawa, Borma, Paz and Saito is called out to stop a Qhardi separatist organization. When they catch them, Kusanagi is intrigued by their contaminated ghosts. Aramaki says they are dealing with a false memory virus that can infiltrate, hack, and brainwash simultaneously created by a programmer known as "Fire Starter", leader of the Qaurdi separatists in Kuzan. The captured separatists all have Scylla (スクラサス, Sukurasasu) tattoos.^[16] Meanwhile, Kusanagi gets closer to her prosthetics specialist boyfriend Akira Hose, but Togusa confronts Kusanagi about him, suggesting a link between Akira, the dam explosion, prosthetics-related crimes and his involvement with her. Kusanagi eventually realizes that Akira is the key, but also a puppet in a complex web involving Japanese weapons manufacturer Harimadara Heavy Industries, weapons smuggling, explosive prosthetics and propagation of the false memory virus. When she finally confronts Akira, he takes his own life, terminating himself as a virus host. Batou later tells Kusanagi that he figured she was the original Scylla and leader of the separatist army, but she replies that she's stopped switching bodies so often since then. Later Kusanagi asks Togusa to join her team, even if he is just a natural, married, and a father.

In the winter of 2028, tensions are rising in New Port City as demonstrations are held concerning the interests of foreign cartels. Aramaki of Section 9 shuts down the city following a tip-off about a Qhardi group being mobilized to target the Yotsubashi Building area following the cyber-contamination at Harimadara months ago. Suddenly the Riot Squad open fire on the citizens and even themselves. Kusanagi and her team suspect a self-destructing Stuxnet-type virus is the cause, possibly released by the terrorist "Fire Starter." Meanwhile at a VIP ceremony to celebrate a contract between the Kuzan water company and Harimada, a hacked Kusanagi using optical camouflages kills Dr. Zhinzhee Bekka Arr Thied and escapes. In the streets, Batou captures a cyborg girl, Emma Tsuda, who started the massacre. Colonel Hozumi of Army intelligence wants her for testing for the cyber-virus – a triple package of brainwashing, Ghost infiltration, and false memory creation – but Aramaki refuses. On examination, Tsuda is found to be technical officer in Colonel Hozumi's command with a special neurochip-type cyberbrain which was hacked by Brinda Jr., "Scarecrow". Ishikawa's research shows that Colonel Hozumi is targeting Harimadara, the Vice-Minister and the 501. On the docks, Hozumi shoots Tsuda to silence her, but her and Scarecrow's Ghosts merge with a Harimadara "multi-legged tank". When Kusanagi's team eventually stops it with the help of the Logicomas, the tank bursts open and a cyborg emerges and walks toward the sea. However, is destroyed by cannon fire from a Kuzan ship offshore as is Hozumi's helicopter overhead. With Hozumi in custody, Aramaki tells Kusanagi that she has now been granted special authority by the Minister of Home Affairs to Investigate the high-level hacking virus and any organizations involved.^[17]

Before being captured, Hozumi claims that she had successfully packaged the Fire-Starter virus with cyberbrains and could create all the soldiers she wanted. meanwhile an unknown figure uses a translucent sphere to blow up a passenger flight 381 as it flies overhead by exploding an Ariel prosthesis implanted in Tei Musrsaka, an undercover US agent infected with the Fire-Starter virus. When Kusanagi's team go to investigate his apartment because of a link to Fire-Starter, they find US agents are already there. In Aramaki's office Kusanagi meets Jeril, from American Army intelligence who is also hunting the Fire-Starter broker they have code-named Pyromaniac. Kusanagi's team agrees to Aramaki's request to work with them on the condition she can question Hozumi who is also a target of Pyromaniac. Ishikawa finds that Musrsaka was following Galves Garcia, a cyber-drug dealer. As Kusanagi is about to transfer Hozumi from the Army Medical Center to the courthouse, Pyromaniac strikes causing chaos and confusion. Kusanagi traces him to the same building, where they capture a man apparently being used as a proxy. The prisoner escapes, revealing himself to be the Pyromaniac, and acquiring security codes. Kusanagi deduces that Pyromaniac had inside assistance, confirmed when he attacks the convoy transporting Hozumi from a helicopter gunship. Pyromaniac hacks into Kusanagi from outside and they meet in a virtual world that looks like a Kuzan battlefield. He states that he is a vessel for the Ghosts of Galvez, and Emma, and Murasaka. Kusanagi argues that he's just a construct of false memories of the Fire-Starter virus to eliminate threats to its continued existence and she traps then erases him. In the real world, Pyromaniac also dies, and Kurutsu, head of the 501 Organization, retrieves the translucent sphere from him and dumps his body. Meanwhile, Kusanagi's team and the Tachikoma fight off forces controlled by the Fire-Starter virus. In the aftermath, little useful is retrieved from Pyromaniac's cyberbrain and Kusanagi is congratulated by the prime Minister for catching the terrorist who downed flight 381. Elsewhere, Kurutsu quietly states that she has finished refining the virus.