The priceless Pink Panther diamond has been stolen from a museum in the Arab nation of Lugash. The Phantom or Sir Charles Litton (Plummer) flees the museum and must battle numerous toughs to escape the adjoining disco. The infamous Jacques Clouseau (Sellers), having been stripped of his Inspector status for his numerous misadventures over the years, is called in by Chief Inspector Dreyfus (Lom) to solve the crime and given his rank back. Litton is the prime suspect as his trademark glove was recovered at the scene, but this time he is not the thief. In fact he is trying to catch the criminal who has the stone in order to clear his name.
Claudine (Schell), Litton's wife gets mixed up with Clouseau in the resort town of Gstaad with hilarious repercussions as Clouseau wears one improbable disguise after another trying to catch the couple red handed. He pretends to be the housecleaner but sucks up a parrot and lodges the nozzle end of he vacuum on the chest of the real maid without ever finding any clues. Dreyfus is quickly losing his mind as Clouseau bungles and stumbles toward the resolution of the mystery of the missing gemstone. Throughout the movie, to keep the Inspector's reflexes sharp, houseboy Cato (Kwouk) is ever ready to pounce, karate chop, judo throw, or produce any level of mayhem. The impromptu sparing always results in catastrophic damage and furniture abuse. Clouseau is convinced he has solved the crime, although it is Litton who does the sleuthing work to figure out the caper. Dreyfus is clearly on the verge of insanity by this time.