Char's Counterattack takes place in U.C. 0093, 5 years after the end of Double Zeta Gundam. Char Aznable has reappeared and formed the Neo-Zeon Alliance, a force pledged to bring independence to the space colonies no matter what the cost, even if it means the destruction of the Earth. Unprepared for the assault, the EFG forms the Lond Bell forces, a military group with the express duty of defending Earth against the Neo-Zeon forces. The Lond Bell forces include heroes from the One Year War such as Bright Noah, now captain of the battleship Lar Kailum, and Amuro Rey, now the top pilot of the EMF. The Lond Bell is the only thing standing between Earth and Char's revenge.
As Char's Counterattack opens, the Neo-Zeon forces are leading their first major attack against the Earth. Neo-Zeon operatives have captured the asteroid Fifth Luna and have moved it into a collision course with the EMF headquarters in Lhasa, Tibet. Caught by surprise, the Lond Bell forces are unable to launch an effective counterattack. Nevertheless, Amuro Rey manages to break through the enemy lines and attacks the asteroid thrusters directly. Neo-Zeon ace pilot and artificial New Type Guynei Guss attempts to stop him, but Amuro easily gains the upper hand over Guynei. However, his efforts prove futile as Char Aznable arrives in his new mobile suit, the MSN-04 Sazabi. Outnumbered and outclassed, Amuro retreats.
Meanwhile, the EFG sends Senator Adeneur Paraya to Side 1 to secretly negotiate a peace treaty with Char and the Neo-Zeon, in an attempt to avoid further conflict. Senator Paraya and his daughter Quess board a shuttle that will take them to Side 1. At the last minute, Paraya uses his government status to get a seat on the shuttle for Hathaway Noah, son of Bright Noah, who is trying to rejoin his dad in space. The shuttle launches but narrowly avoids hitting the falling Fifth Luna asteroid. Fifth Luna slams into Tibet, destroying the EMF base there. Char only needs to drop one more asteroid, and the Earth will suffer a "nuclear winter," that will kill all life there.
Disgusted by the Lond Bell failure, Amuro Rey temporarily leaves the Lar Kailum for the Von Braun colony on the Moon, home of Anaheim Electronics. There the Anaheim engineers, under the leadership of Amuro's girlfriend Chien Agi, are working on the RX-93 Nu Gundam, a new high-performance mobile suit designed to counter Char's MSN-04 Sazabi. However, shortly after Amuro's arrival the Neo-Zeon launch a diversionary attack on the Lar Kailum and her escort ships to distract them from Char's shuttle. Char is going to Side 1 to negotiate with the EFG forces for peace. Bright sends a message to Amuro on the moon, who takes the half-complete Nu Gundam and returns with Chien. Amuro and the Nu Gundam succeed in stopping the Neo-Zeon forces, who retreat after Char's shuttle has successfully left the area.
The Lar Kailum then rescues the shuttle containing Senator Paraya, Quess, and Hathaway, which had been damaged by Fifth Luna's fall and almost drifted into the battlezone. Senator Paraya commandeers the Lar Kailum and orders Bright to transport them to Side 1 for the negotiations. Once they arrive, Senator Paraya meets with Char and manages to negotiate a treaty. Char will surrender all his warships to the Lond Bell if the EFG sells him the now-abandoned Axis asteroid. To make the deal final, Char brings the payment for Axis in gold bullion, and promises to send the Neo-Zeon fleet to Luna 2 asteroid for disarmament. Senator Paraya and the EFG officials gladly agree to Char's proposal. As the EFG party leaves, Char comments on how stupid they are, but then thinks to himself "I'm doing something dirty, Amuro. If you're near, seek me out."
Meanwhile, Amuro is taking some well-earned R&R and is showing Hathaway and Quess around the colony. During their tour, they accidentally run into Char, who is taking a horse ride in the countryside. Amuro chases Char and eventually manages to knock him off his horse. Amuro and Char battle, arguing all the time about the other's goals. As Amuro gains the upper hand, however, Quess runs forward and steals his gun. Quess has been impressed by Char's views and yells at Amuro for attacking Char. Then Guynei arrives in a mobile suit to help Char escape. As Char leaves, he invites Quess to accompany him.
Much to Char's delight, Quess turns out to be a powerful New Type, almost as powerful as Amuro Rey. Char pairs her up with Guynei, who begins training her as a mobile suit pilot. Char secretly hopes to use Quess as a weapon to defeat Amuro and the Lond Bell. Meanwhile, Char uses decoys to split his forces into two groups. He sends one group disguised as the main Neo-Zeon fleet to Luna 2 to "surrender," while the other half of the fleet travels to Axis ahead of schedule. Meanwhile, a small EMF fleet awaits Char's forces at Luna 2, led by Senator Paraya. As the EMF fleet begins to recon the Neo-Zeon fleet, the Neo-Zeons open fire. Guynei and Quess attack the fleet together, and during the battle Quess unwittingly kills her own father when she destroys the EMF command ship. The EMF fleet is completely destroyed, and the Neo-Zeon forces capture Luna 2, including a stockpile of nuclear weapons which was intended to be used as a last resort against Char's forces.
Meanwhile Amuro and Bright discover Char's treachery by inspecting tapes of the Neo-Zeon fleet. Realizing that Char has already defeated the forces at Luna 2 and captured the Axis asteroid, the Lond Bell forces race toward Axis. However, Char has already begun to drop the Axis asteroid on the Earth. He plans to detonate the captured nuclear weapons just before the asteroid crashes, further contaminating the Earth's surface. The Lond Bell forces attack with regular missiles mixed with spare nuclear missiles taken from Side 1. Unfortunately, Char and Guynei are able to destroy the missiles before they can strike Axis. Bright then orders the Lond Bell mobile suit forces to attack, but the attack fails and Axis begins its final fall towards Earth.
Amuro and Bright make a final plan to stop Char. They plan to split Axis apart using their few remaining missiles, thereby making the debris miss the Earth all together. Should the missiles fail, the Lar Kailum will land on Axis, and the crew will use Junior Mobile Suits to set explosives inside the asteroid that will split it apart. Bright apologizes and says that it is highly likely that they won't be returning from this mission. As Amuro and the crew prepare for the final battle, Bright allows Hathaway, who stowed onboard the Lar Kailum in order to save Quess, to stay on the main bridge. He also tells Hathaway to make out a will.
Amuro leads the attack in the Nu Gundam. Meanwhile Char has assigned Quess to pilot the Alpha Azieru, an enormous Neo-Zeon mobile armor. Quess and Guynei both try to stop Amuro, but Amuro manages to envade them, killing Guynei in the process. Meanwhile, Hathaway is beginning to develop New Type abilities of his own, and senses Quess in the Alpha Azieru. He manages to steal a Lond Bell mobile suit and goes off to confront Quess. Quess has by now lost Amuro and is now fighting Chien, who took off in a damaged mobile suit to try and help the Lond Bell forces. Hathaway approaches Quess and begs her to stop fighting, but Quess is bitter and tries to force Hathaway away. While Quess is distracted, however, Chien launches a missile at the Alpha Azieru. Quess senses the approaching missile and dives in front of Hathaway to protect him. The Alpha Azieru explodes and Quess is instantly killed. Hathaway lashes out in anger and accidentally destroys Chien's mobile suit, killing her too.
Meanwhile Amuro alone has managed to penetrate the Neo-Zeon line and begins attacking Axis' nuclear engines. Char attacks him in a desperate attempt to drive him away. During the combat, Amuro discovers an abandoned Neo-Zeon battleship that is holding the stolen nuclear weapons from Luna 2. Realizing Char's plan, Amuro destroys the battleship with a few well-placed shots. Char is furious.
Amuro and the crew of the Lar Kailum enter Axis to place the explosives. Char also follows them in and begins dueling with Amuro with bazookas. Bright and the crew finish setting the explosives and escape, while Amuro distracts Char. In a final savage mobile suit battle, Amuro finally defeats Char, destroying the Sazabi and capturing Char's escape capsule. The explosives detonate and Axis shatters into several fragments. However, the explosion slows one of the fragments enough to be caught by Earth's gravity, and the fragment begins to enter the Earth's atmosphere.
Char laughs, claiming that he has won. However, Amuro takes Char's escape pod with him and attempts to use the Nu Gundam to push the fragment back into orbit. Inspired by his actions, the surviving Lond Bell and EMF mobile suits try to help him. Even some of the Neo-Zeon pilots decide to try and help push Axis away. Amuro knows that the other mobile suits cannot stand up to the strain however, and prevents them by committing suicide by using his New Type powers to push the other pilots away. However, the Psycho-frame (a more advanced version of the Psychommu system) built into the Nu Gundam overloads due to the incredible amount of psychic energy being directed toward one objective. As the Psycho-frame grows brighter and brighter, Amuro and Char exchange some heated debate about ethics. Amuro criticizes Char for turning Quess into a machine, and Char counters by blaming Amuro for Lalah Sun's death. Their argument is cut short as the Psycho-frame explodes. The light of the Psycho-frame focuses on Axis, and Bright and the others are shocked to realize that Axis is actually heading AWAY from Earth! The Psycho-frame's glow then surrounds the Earth, as all the survivors of the conflict look at it in wonder.