The film begins with the Police Academy graduates in a hot air balloon, as they are sent to Miami to attend the Police Chiefs Convention, where Commandant Eric Lassard is set to receive a lifetime achievement award. As soon as they arrive in Miami, Lassard is targeted by a group of jewel thieves, led by the ruthless Santiago. They are after a cache of priceless diamonds that was hidden inside a camera given to Lassard by mistake.
The jewel thieves follow Lassard and his team to their beach hotel, and one of them switches the suitcase containing the camera for another identical one. But the plan goes awry when the suitcase containing the camera falls into the hands of local fisherman who sells it to a pawnbroker. The jewel thieves soon track down the pawnbroker, and a chase ensues, with the Police Academy misfits, heading the pursuit. They get to the pawnshop first but are mistaken for the thieves by the local cops, and they are apprehended.
The thieves, meanwhile, capture Lassard and take him to their hideout, hoping to get their hands on the camera containing the diamonds. Meanwhile, the other police officers mistake the jewel thieves for the misfit cops and allow them to escape. The Academy misfits then come up with a plan to rescue Lassard and catch the real thieves, which involves a high-speed chase, a shootout, and a stand-off at an abandoned amusement park.
The film ends with Lassard receiving his lifetime achievement award, and the Police Academy graduates leaving Miami, with the knowledge that they may have bumbled in their mission to protect Lassard, but they ultimately came through.