The Clone Wars are now over two years old. The entire galaxy has been thrown into chaos. On one side of the conflict are hundreds of separatist star systems, led by the charismatic Count Dooku, who are rebelling against the Republic led by the scheming-in-secret Chancellor Palpatine/Darth Sidious.
Palpatine manages to place blame on the Galactic Senate and the Jedi Knights for much of what is going on during the wars. Palpatine makes them the scape goats for all of the galaxies many problems. The people grow tired of the Galactic Senate and the Jedi Knights. They are ready for drastic change and Palpatine realizes this.
At the beginning of the movie, Anakin and Obi-Wan fight in various Clone War battles. Obi-Wan is now a general fighting for Bail Organa of Alderaan.
Palpatine senses Anakin's impatience with the Jedi Knights. The Jedi seek to keep Anakin from Padme. Also, Anakin hates being both poor and relatively powerless. A Jedi takes a vow of poverty. Anakin believes that he is perhaps the greatest Jedi ever and wants people to recognize his greatness. In secret, Palpatine approaches Anakin. Palpatine explains the ways of the dark side and how it can be used by Anakin to make him rich and powerful. Anakin is receptive. He and Padme have nothing and they will always have nothing as long as Anakin remains a Jedi. Palpatine's offer cannot be refused.
Palpatine explains to Anakin the rules of the Sith. Palpatine tells Anakin that only two Sith Lords can exist at any one time. If Anakin wants to become rich and powerful, then Anakin must face Darth Tyranus again and kill Darth Tyranus in order to become Palpatine's new apprentice. Later, Anakin and Tyranus meet face to face. Anakin slays Tyranus after an intense light-saber duel.
While Anakin is falling to the dark side, Obi-Wan is busy fighting in the wars. Padme contacts Obi-Wan and tells Obi-Wan that Anakin is leaving the Jedi Order. Obi-Wan leaves the war and rushes to confront Anakin.
Obi-Wan finds Anakin on a volcanic world. Anakin tells Obi-Wan that the Jedi are weak. The Jedi seek to be both poor and powerless. Anakin states that the dark side offers riches beyond any man's wildest ambitions. Anakin calls Obi-Wan an idealistic fool for staying with the Jedi. The two begin to argue. A light-saber battle between them erupts.
Obi-Wan states that he cannot disobey the Jedi Council and blocks Anakin's attack. Anakin becomes reckless and falls into a molten pool. Anakin's light sabre falls to the ground. Obi-Wan watches Anakin sink into the lava pool. Obi-Wan exits the battle area to find help for Anakin.
Palpatine enters and has his storm troopers rescue Anakin from the molten pool. They then quickly leave the area. A few minutes later, Obi-Wan returns with some other Jedi Knights. They are unable to find Anakin. Obi-Wan assumes the molten pool has consumed Anakin's body. Obi-Wan finds Anakin's light sabre on the ground and takes it with him. Obi-Wan tells Padme that Anakin is dead. Padme is saddened by this news.
Palpatine's medical droids nurse Anakin back to health. Anakin is eventually placed into his familiar-looking black mask and body armor. Palpatine teaches Anakin to the ways of the Sith. Anakin grows to hate the Jedi and the Republic. Palpatine promises that, in time, Anakin will be reunited with Padme, but in the mean time Anakin must be patient and allow their plan to unfold. Anakin takes the name of Darth Vader. Only Palpatine and his trusted minions know that Darth Vader is actually Anakin. Everyone else believes that Anakin is dead.
The Clone Wars continue to rage on and thousands of Republic clones are killed in the various battles. Many Jedi are killed in the wars. The Galactic Senate is under heavy pressure from their people to find a way to end the wars. Palpatine continues to frame the Senate and the Jedi as the reason the wars are going so badly. The people demand and end to the Jedi's and Senate's incompetence and corruption. Palpatine takes this opportunity to declare himself Emperor. He immediately abolishes the Galactic Senate, Jedi Council and the entire Jedi Order. The people hail Palpatine as the saviour of the Republic.
Palpatine replaces the Galactic Senate with the Imperial Senate. The members of the new Senate are hand picked by Palpatine. The Imperial Senate and Palpatine issue a proclamation declaring the Jedi Knights to be enemies of the Republic. They order the immediate arrest of all Jedi Knights. The Jedi begin to go into hiding. Jabba the Hutt helps Palpatine hunt down the Jedi. Many Jedi are killed during this purge.
Separatist's agents leak false information to Republic spies concerning a super weapon being developed by the separatist's scientists on Geonosis. Palpatine states that the Republic must have this weapon. Of course, the super weapon does not exist and Palpatine knows this, but he uses this weapon as an excuse to send all of the Republic's remaining star ships into a trap. Palpatine expects the separatist's cloaked fleet to completely annihilate the Republic's star ships and remaining fighters.
All the star ships of the Republic military converge on Geonosis. The flag ship of the Republic fleet contains Palpatine and Darth Vader. Obi-Wan sneaks his star ship into the Geonosis system. Palpatine's flag ship detects Obi-Wan's ship and captures it with a tractor beam. Obi-Wan is brought aboard Palpatine's ship. There are no enemy star ships visible near Geonosis since the separatists's fleet remains hidden with cloaking technology. When the trap is set, the separatist's fleet de-cloakes and destroys most of the Republic's remaining star ships and fighters. Palpatine surrenders and separatist troops board Palpatine's ship and take Palpatine, Darth Vader and Obi-Wan to the lower levels of the separatist's ship.
Yoda, Mace Windu and a pregnant Padme are brought before the separatists leaders. For their protection, Yoda, Windu and Padme are surrounded by creatures we have never seen before. The separatist leader announces that Palpatine and the entire Republic have surrendered. The great Republic has finally lost the war.
A great battle erupts between Yoda, Mace Windu, Obi-Wan vs. the separatists, Palpatine and Darth Vader. It is a tremendous fight. Yoda, Mace, Padme and Obi-Wan manage to escape on a starship.
Their starship arrives on an obscure planet called Dagobah. Prior to Luke and Leia's birth, Obi-Wan states that he will now go by the name Ben. The Skywalker twins are born on Dagobah. After many shed tears, Yoda is left behind on Dagobah. Next, Obi-Wan and baby Luke taken to the forgotten world of Tatooine. The final destination for Mace Windu, Padme and baby Leia is the safety of Alderaan. Bail Organa greets them with open arms. Bail gives them a secret hiding place.
Lastly, Obi-Wan is seen at Owen and Beru Lars' home. He gives Luke to them to raise. Obi-Wan tells Owen and Beru that Obi-Wan is now dead along with all the other Jedi Knights. He will now go by the name Ben. The film ends with baby Luke in the gentle arms of Ben Kenobi. The ghostly spirits of many Jedi Knights appear behind Obi-Wan and baby Luke.