The story begins two years from where the previous film ends, and Peter Parker is finding his double life increasingly difficult. Precariously struggling to balance his crime-fighting duties with the demands of his normal life, Peter often finds his personal life taking a backseat. He loses a job, faces financial difficulties, and struggles to maintain his physics studies. Moreover, he has become estranged from both love interest Mary Jane and best friend Harry Osborn, and Aunt May is threatened with foreclosure.
Harry, now head of Oscorp's research division, has invested in the research of brilliant scientist Otto Octavius, Peter's idol. To perform a sustained fusion experiment, Octavius has developed a set of artificially intelligent mechanical arms, which are impervious to heat and magnetism. Though the experiment overloads and becomes unstable, Dr. Octavius refuses to halt it, with devastating results: his wife is killed; the neural inhibitor chip which enabled him to control the arms is destroyed; and the arms are fused to his spine. Uncontrolled, the tentacles begin to influence Octavius' mind, playing on his vanity and ego, and he decides he must complete his experiment at any cost. J. Jonah Jameson names him Doctor Octopus or "Doc Ock." Doc Ock attempts to rob a bank where Peter Parker and his Aunt May happen to be present. After a short glitch in his powers, Spider-Man manages to take back most of the stolen money, but Doc Ock takes Aunt May as a hostage. When Spider-Man rescues her, she revises her former opinion of him and realizes that he is a hero.
During a party, Peter learns that M.J. is planning to marry John Jameson, and Harry lashes out at him in a drunken rage due to his loyalty to Spider-Man; shortly afterwards he loses his powers while web-slinging across town. Meanwhile, Doc Ock rebuilds his experimental reactor. Peter questions if he could ever have what he "needs," a life as Peter Parker, which involves a vision of Uncle Ben, and resolves to give up being Spider-Man. Back home, after visiting Uncle Ben's grave, Aunt May is distressed by Peter's confession that he was somewhat responsible for his Uncle Ben's death. Aunt May and Peter reconcile, and she tells Peter of the hope that Spider-Man brings to others, in spite of what dreams he may have to sacrifice. Peter attempts to re-connect with Mary Jane, but she informs him it is too late. In the meantime, Doc Ock has completed rebuilding his reactor, and needs one final item: the tritium which fuels the reactor. He goes to Harry Osborn for it, dangling him over the edge of the Osborn mansion balcony when he refuses. Harry agrees to give Ock what he needs in exchange for capturing Spider-Man. Mary Jane meets Peter in a coffee shop to ask if he still loves her, but Peter tells her that he does not. Amidst this exchange, the two are ambushed by Doctor Octopus, who abducts Mary Jane in a ploy to lure Spider-Man into a trap. Peter's powers return, and he dons his costume and engages Doc Ock in battle, culminating with the insane scientist forcing Spider-Man to rescue a runaway subway train.
Spider-Man manages to stop the train before it can plunge over the end of the track, but at great physical exertion. Weak, he is captured by Doctor Octopus and delivered to Harry Osborn. Harry unmasks Spider-Man and is stunned to discover that his sworn enemy is also his best friend. Peter awakens and convinces Harry to reveal Octavius' whereabouts so he can rescue Mary Jane. Spider-Man finds Doctor Octavius in an abandoned warehouse on a waterfront pier, where he's restarted his fusion experiment. After battling with Doc Ock, Spider-Man manages to stun the villain with an electric shock. Peter then reveals his true identity to Octavius and pleads with him to stop the machine. Returned to his senses and determined to end his doomsday experiment before it causes more harm, Octavius uses his mechanical arms to collapse the floor of the building, successfully drowning the device at the cost of his own life. Mary Jane sees Peter without his mask on, but Peter tells her they can never be together, as he will always have enemies.
Across town, Harry has visions of his father, the late Norman Osborn, in a hanging mirror. The hallucination demands that his son kill Peter Parker to avenge his death. Harry refuses and hurls a dagger at the mirror, shattering it and revealing a secret room, containing the Green Goblin's war gear. At the end of the film, Mary Jane leaves her wedding and finds Peter in his apartment, telling him that she has decided to be with him — despite the risks. She persuades Peter to finally let her in while accepting the need of his vows by letting him respond to a sudden call for help.
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