Set after the events of Gamera, a meteorite collides with the rocket transporting the creature to Mars. Now free, Gamera returns to Earth and destroys Kurobe Dam in Japan. At the same time three mercenaries are sent by Kano, a WWII veteran, to an island in the South Pacific to retrieve a huge opal he once found and hid in a cave. Despite warnings from the local villagers, the trio find and locate the opal, but one dies from a fatal scorpion sting. The second man, Keisuke, Kano’s younger brother, is betrayed by his fellow expeditioner Onodera and apparently killed in a cave-in.
En route back to Japan, Onodera accidentally leaves the opal exposed to an infrared light he was using to trat his athlete’s foot, per orders of Dr. Sato. The heat incubates the opal – actually an egg – and a lizard eventually hatches. Growing to enormous size very quickly, the lizard destroys the ship and Kobe Harbor. Keisuke, having survived the cave-in, awakens in the care of the villagers. He then returns to Japan with a village girl called Karen, who refers to the lizard as Barugon. Barugon wreaks havoc in Osaka with its freezing breath and prevents a retaliative missile strike with a rainbow emanation from its back. Barugon encounters Gamera and the two battle, with Gamera eventually being frozen solid.
Keisuke and Karen, having arrived in Japan at that moment, then go to Onodera’s home. Onodera tells Keisuke that the opal is aboard the sunken ship. Keisuke informs Onodera that the opal was Barugon’s egg. Onodera refuses to believe him. Keisuke also says to Onodera that he went to see his brother, but found that both his brother and his brother’s wife had burned to death. Keisuke implies that Onodera was responsible, and they fight, after which, Keisuke and Karen leave him tied to a support beam in his home. The pair then travel to the Japanese defense ministry, where Karen tells them Barugon is vulnerable to water, and suggests a plan using a huge diamond to lure Barugon into a lake to drown.
Onodera’s wife frees Onodera, and tells him about the huge diamond she heard about on the news. Barugon, meanwhile, is lured towards Lake Biwa, but the plan fails because the diamond’s light proves to be not enough. Dr. Sato, who treated Onodera on the boat, explains that this Barugon has a genetic abnormality due to accelerated growth. Sato suggests amplifying the diamond’s light by irradiating it with infrared radiation. This plan appears to be succeeding, until Onodera, having escaped with the aid of his wife, steals the diamond. Both he and the diamond, however, are immediately devoured by Barugon.
Keisuke discovers that mirrors are not affected by Barugon’s rainbow beams, so the military devises a plan to reflect Barugon’s rainbow back at it with a giant mirror. Barugon is wounded by its own blast, but it will not repeat the mistake. Gamera thaws out and attacks Barugon once again, and after a destructive battle, Gamera drags Barugon down into Lake Biwa. After defeating Barugon, Gamera flies away. Keisuke is remorseful over the death and destruction his greed has caused, but it is strongly implied he has found love with Karen and will return to the island with her.
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