Major Kusanagi and Section 9 are called in to resolve a hostage crisis at a Geisha house staffed by android geisha. After the crisis is averted Aramaki is approached by a friend of his in the military who reveals that one of the hostages in the Geisha house was under investigation after requesting a report detailing military actions to be taken in the event of various states of emergency. Given the sensitive nature of the case, Section 9 is therefore asked to pick up the investigation where the original team left off.

A heavy-assault multiped tank runs amok under the control of an unknown hijacker. After going on a destructive spree at the Kenbishi Industries testing facility, the multiped takes off towards the urban area of Niihama. Kusanagi briefs her squad at Section 9 HQ, explaining that the tank's designer, Takeshi Kago, died a week before, and that no terrorist organization has claimed credit for the heist. Since the military refuses to get involved unless terrorism is the motive, Section 9 is called in to stop the tank.

A series of android suicides prompts Section 9 to investigate the manufacturer. While Section Head Daisuke Aramaki questions the plant manager, Kusanagi and a Tachikoma covertly hack into the plant's database to try and uncover any possible wrongdoings by the manufacturer. As it turns out, all the androids were of the same model, an obsolete product known as the GA07_JL android.

An old friend of Togusa's named Yamaguchi is murdered after sending him pictures concerning an unsolved case involving a hacker known as "The Laughing Man". His investigation leads to the discovery that the members of the Laughing Man task force have all been implanted with cybernetic surveillance devices called 'interceptors', which reside in the vision center of the subject's brain, recording everything they do. Shortly thereafter the information is leaked by Section 9, prompting the Police to call a press conference to announce their 'findings' regarding the interceptor devices. During the broadcast the mysterious hacker known as The Laughing Man returns, hijacking a Police official's cyberbrain and delivering a threat to the Superintendent-General.

Section 9 suspects that the Police Investigators handling the Laughing Man case are using their primary suspect, a former Serano Genomics, Inc. programmer with a shady anti-corporate past as a decoy to hide some form of higher-level corruption. Aramaki orders Section 9 to commence around the clock surveillance the programmer in an attempt to catch him in the act.

Things go fairly haywire as Kusanagi suspects that The Laughing Man has inserted a virus into the police units guarding the Superintendent-General. As Section 9 members struggle to evacuate the Superintendent-General to safety, the anti-virus team at HQ races to develop a vaccine to protect against it. After the immediate threat is averted, Aramaki orders Section 9 to open their own investigation into the Laughing Man case.