The film begins with a narration about the rise to power of Emperor Han, the Dragon Emperor. It details the relationship between him and Xi Yuan who knows the secrets of immortality, which is the only battle that Han cannot win. Han declares to his first in command General Ming that no one is to touch Xi Yuan, however ever since General Ming was charged with finding Xi Yuan and bringing her to Han, he has fallen for her. After Xi Yuan supposedly casts the immortality spell on Han, he claims he feels its power and ushers Xi Yuan to the balcony where they look down to see General Ming tied at the arms and legs about to be pulled apart by horses. Han found out about their relationship and kills Ming while Xi Yuan watches. He then stabs her but she escapes. Knowing that the Emperor would destroy the world if he were to become immortal, Xi Yuan places a curse on him and his army to be turned to stone.
Explorer Rick O\'Connell, his wife Evelyn and brother-in-law Jonathan are now retired. Rick is shown to be practicing fly fishing with little success. Evelyn has released two books about mummies which are obviously about her real life chronicles but at a book reading she declares that the character in the book is completely different from her. Their son Alex has dropped out of school and has become what the older O\'Connells still long to be, explorers and adventurers. Alex along with the financial backing of Roger Wilson, excavates and finds the Dragon Emperor\'s tomb but is attacked by a mysterious woman. They avoid being harmed and successfully bring the Emperor back to civilization. In the meantime, the British government entrusts the elder O\'Connells to take the Eye of Shangri-La back to China as a good faith gesture from the British to the Chinese. All the O\'Connells arrive at Imhoteps, the night club that Jonathan now owns in Shanghai. As they continue to Alex\'s exhibit, Roger, General Yang and his second in command Choi intervene, take the Eye of Shangri-La and force Evelyn to read the script to open the Eye and release the Emperor. Alex finds the mysterious woman from the excavation site at the exhibit and after a quick dialogue help in freeing Alex\'s parents. With the resurrected Han escaping with General Yang, the O\'Connells chase them through the streets of Shanghai until the Dragon Emperor and Yang are able to escape.
The mysterious woman reveals herself to be Lin a protector of the Dragon Emperors tomb and says that Han will try to become immortal by going to Shangri-La using the Eye as its guide. The O\'Connells, Jonathan and Lin trek through the Himalayas with the help of Mad Dog Maguire and reach the tower that will reveal the path to Shangri-La when the Eye is placed on top of it. General Yang with his soldiers and the Emperor arrive shortly after and a a battle ensues. As the battle wears on, Lin yells to the mountains and beckons three yeti that protect the group and fend off the enemy soldiers. The Emperor grows impatient and is able to place the Eye on top of the tower to reveal the path to Shangri-La. While trying to release a grenade, the Dragon Emperor saw Alex at threw the dagger towards him. Rick jumped in front of the dagger and blocked it with his body, stabbing him near the stomach. Alex then triggers an avalanche from a bomb which buys them time to reach Shangri-La first.
Once they arrive, they are greeted by Xi Yuan who is then revealed to be Lin\'s mother (her father is General Ming). They are immortal and have guarded the secrets of the Emperor for over 2,000 years. The Emperor arrives and is able to bathe in the pool which brings him back to his human form. His power is fully revealed and he, in the form of a three-headed dragon, kidnap Lin and fly to his Terracotta Army at the excavation site.
The Emperor summons his army and Xi Yuan, by sacrificing her immortality along with her daughter\'s, is able to summon the army of undead comprised of the Emperors enemies that he had buried beneath the Great Wall of China. Led by General Ming, the army of the undead and the Terracotta fight. An epic battle ensues which includes a one-on-one fight between Xi Yuan and the Emperor resulting in her sacrificing herself in order to take the sacred dagger from the Emperor, which is the only weapon that can kill him. Meanwhile, Alex saves Lin and as the battle subsides, they find Xi Yuan dying who gives the dagger to Lin and tells her to stab the Emperor through the heart.
Rick and Alex follow the Emperor to his main chamber and a fight ensues. Outside the main chamber, Lin and Evelyn are met by General Yang and Choi which are eventually disposed of. As the fight between Han and Alex comes to a brief end, Rick is able to plunge the dagger into the back of Han while he is in animal form turning him back human. Han and Rick fight without the use of sorcery and Han takes the upper hand. During the fight, the dagger is broken into two pieces. Alex is able to take one piece and leaves a sign for his dad to pick up the other piece and work as a team to plunge the dagger into the Emperors heart. Rick then manages to take the upper hand on Han and tries to impale him with the hilt half of the dagger, but in the climactic moment, Alex jumps from behind the Emperor with the sharp end of the dagger and impales him through the heart while simultaneously Rick stabs the emperor through the heart from the front. The dagger is pulled out, now together again and the Emperor dies a dramatic death in flame.
Back at Imhoteps, Mad Dog is the new owner and we find Lin, who gave up her immortality along with Xi Yuan\'s in order to kill the Emperor, dancing with Alex. Rick and Evelyn are dancing as well. We see Jonathan getting into a cab with the Eye of Shangri-La as he drives off to the airport to live in Peru, where he claims is a place where there are no mummies. After he leaves, a caption appears on the screen stating that a few weeks later there were mummies discovered in Peru.