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In 1982, Sam Brenner and his friends Will Cooper and Ludlow "The Wonder Kid" Lamonsoff play at an amusement arcade together before Brenner participates in a video game championship, where he seemingly loses a Donkey Kong match to Eddie "The Fireblaster" Plant. Videotaped footage of the event is put in a time capsule that gets launched into outer space.
In the present, Brenner, now an electronics installer, is summoned alongside lieutenant colonel Violet van Patten to the White House, where Cooper, now President of the United States, shows surveillance footage of a besiegement at the Andersen Air Force Base in Guam. Brenner notes the attack's resemblance to the game Galaga, but Admiral James Porter of the United States Navy strongly advocates against its inference in the case. Brenner meets up with Lamonsoff, who reveals the attack was caused by an alien force that mistook the time capsule's footage as a declaration of war and are now challenging Earth to a best-of-three battle using technological recreations of the championship's games, claiming they have won the first match. Brenner and Lamonsoff inform Cooper of a coordinated aim at India, but he dismisses their concerns.
After the aliens win the second match by demolishing the Taj Mahal as Arkanoid, Brenner and Lamonsoff train Navy SEALs to play the games while van Patten develops effective rayguns. Calling themselves the "Arcaders", the team heads to London, where the aliens attack Hyde Park as Centipede before being repelled by Brenner and Lamonsoff. Cooper, Lamonsoff and Brenner recruit a convicted Eddie to assist in New York City, where the Arcaders battle a giant Pac-Man in Mini Coopers representing the ghosts. After Brenner defeats Pac-Man, the Arcaders receive Q*bert as a trophy. During a celebration at the White House however, the aliens announce that one of the Arcaders has cheated, meaning Earth forfeits the challenge. Before being abducted by the aliens, van Patten's son Matty discovers Eddie cheated in the fight against Pac-Man using a code written on his glasses, which he also used in the 1982 video game championship.
The aliens attack Washington, D.C. with an army of 1980s video game characters. With Cooper and a repentant Eddie's help, the Arcaders fight through the onslaught while Lamonsoff persuades Lady Lisa, a video game character whom he has a crush on, to join them. Brenner, Violet, Will and Q*bert are summoned to the aliens' mother ship for a final chance to save Earth by facing the aliens' leader as Donkey Kong. The group is placed on the game's starting level, with Donkey Kong and the captives at the top level. Struggling against the obstacles, Brenner loses hope until Matty reveals Eddie's cheating. Realizing he actually is the world's best Donkey Kong player, Brenner regains his spirit and defeats Donkey Kong, resulting in the aliens' forces, including Lisa, being neutralized.
The Arcaders are hailed as heroes as Will negotiates a peace agreement with the aliens. Eddie apologizes to Brenner for cheating and acknowledges him as the best Donkey Kong player. Seeing Ludlow devastated over Lisa's termination, Q*bert cheers him up by shapeshifting into her. Brenner and van Patten begin a relationship, Eddie meets Serena Williams and Martha Stewart as he requested and the aliens return to their home planet.