- "This is Gotham City. There will always be crime. What I am offering is crime in the hands of professionals, and held to agreed upon terms."
- —Oswald Cobblepot to Burke
Gordon fears Jonathan Crane is still alive and back in Gotham, when The Scarecrow’s signature MO is used in a series of robberies. Meanwhile, Penguin's “licensing” of crime in the city backfires during the grand opening of his new Iceberg Lounge. Also, in the aftermath of his encounter with Ra's al Ghul, Bruce begins his vigilante watch.
Elsewhere, a group of gunmen crash a wedding and begin to steal the guests' valuable objects. Victor Zsasz arrives, stating that they don't have Penguin's license authorization, a deal in which they will be allowed to commit crimes as long as they give half their values to him. Zsasz shoots the leader Merton, cutting his finger and they flee. Meanwhile, Cobblepot manages to convince the newly appointed Mayor Burke to agree to his license union. Jim Gordon arrives at a bar just when a thug is robbing, holding a license. Despite possessing it, Gordon stops the robbery and arrests him. Bruce tells Alfred his intention to stop Cobblepot's crime business.
Merton and his partner Grady Harris visit Gotham Asylum to meet with Jonathan Crane, who is still traumatized after suffering the effects of the fear toxin. Throughout time, Jonathan's mind created a "Boogeyman person" that has been haunting him. Merton and Grady bribe the Warden Reed to release Jonathan, who leaves a drawing in the form of a scarecrow. They take him to his old home where his father left his experimental drugs. They force him to do more fear gas with the use of a scarecrow. The gang then uses the gas to do a bank heist, spraying the people with the gas in order to make the heist easier.
Investigating the heist, Gordon tells Bullock that the method is the same as Gerald Crane's and deduces that someone must have taken the formula from Jonathan. After interrogating the Warden, they go to Grady's apartment but are ambushed by him and Merton. Merton explains that they plan to send a message to Cobblepot regarding the licenses and they leave. Meanwhile, Selina Kyle and Tabitha Galavan attack a group of thugs. When returning to their apartment, Zsasz shows up, claiming that they should go to Cobblepot's club inauguration to get their licenses and forget everything between them. Selina is interested but Tabitha refuses and tells her to pack so they can find a new place.
Cobblepot gives a conference to inaugurate his new club, the Iceberg Lounge and shows the attendees Edward Nygma's frozen body as a hall exhibition. Gordon, using an advice from Bruce, visits him and taunts him that the gang does not fear him, prompting Cobblepot to set to catch the gang. The gang decides to attack the club's inauguration and have Jonathan make more toxins and then lock him in a closet with a scarecrow. He then begins to have a severe hallucination with the scarecrow, who seemingly comes to life. In the GCPD, Gordon is attacked by a group of cops that are loyal to Cobblepot's methods.
In the Iceberg Lounge, Bruce finds Selina on the rooftop and they discuss about what happened at the hospital when Bruce says sorry to Selina about apologizing, just before Alfred takes him to the inauguration. The gang prepares to attack when Cobblepot and Zsasz catch them and announce to the public their intentions. This disgusts Ivy Pepper, who cuts the power and the gang attack, spraying Cobblepot with the fear toxin, making him hallucinate Nygma. The gang is knocked out but Grady manages to escape. The next day, Bruce retrieves the list of criminals with the licenses. However, he accidentally slips on a house where it's been robbed. He is then caught without the mask by the GCPD. Grady returns to Crane's house to get more toxin from Jonathan. However, he discovers Jonathan has adopted a new persona, naming himself "The Scarecrow" and sprays Grady with fear gas.
- The way that Bruce stealthily sneaks away from Jim Gordon in GCPD without him hearing or seeing him do so in, might be a reference to how Batman stealthily sneaks away from Gordon in mid-sentence.
- This episode takes place approximately three months after Heroes Rise: Heavydirtysoul.
- Bruce states that it has been 3 years since his parents were killed at the opening of the Iceberg Lounge, making him about 17 at the time of this episode.
- This is the only season premiere in which Erin Richards (Barbara Kean) does not appear.
- Barbara's flashback in A Dark Knight: One of My Three Soups takes place between Heavydirtysoul and Pax Penguina.
- Jonathan Crane last appeared in "The Scarecrow".