In the year 2000, conventional handguns have been banned, with law enforcement carrying non-lethal "stun" pistols. Nationwide budget changes have resulted in the adoption of cryonic suspension over standard incarceration for convicted criminals. Following the assassination of a mayor in San Antonio, his replacement demands a solution, which is found in the form of the "Knight 4000", a car that will become the next generation of the Knight Industries' supercar KITT.
The theme song, "Knight Rider 2000", by Jan Hammer was released on his 1994 album Drive.
Thomas J. Watts (Mitch Pileggi) – a former cop turned psychotic killer – has been released from the prison and assassinates the mayor. Police officer Shawn McCormick (Susan Norman) confronts the masked Watts holding the next mayor hostage at gunpoint. She shoots Watts, who flees. Shawn finds the handgun used in the murder and hides it, not knowing what to do. The city's new mayor demands the gunman be found, but his fellow councilmen reprimand him for disarming the police and setting up the cryo-prison where the inmates "sleep away" their sentences and emerge the same people as before.
The Knight Foundation (created from a combination of the original series's Knight Industries and the Foundation for Law and Government) offers a possible solution – the "Knight 4000". Devon Miles (Edward Mulhare) and his partner, Russel Maddock (Carmen Argenziano), are green lighted on the idea, but the city wants to see a working prototype of the 4000 in 30 days. Devon decides to bring in Michael Knight (David Hasselhoff) as the test driver.
The Knight 4000 has most of KITT's original features, including a few new and improved systems such as an advanced amphibious mode (which allows the car to ride on water like a speedboat), a virtual reality heads-up display (or VR-HUD, which utilized the entire windshield as a video display), and a microwave stun device that could remotely incapacitate a human target.
Later, Watts ambushes Shawn, shooting her after she discovers that some of her colleagues are working with the assassin to rearm criminals so the city will be forced to give the police their "real" weapons back. Doctors save Shawn by installing a microchip implant into her brain. She recovers, but can't remember the details of the attack.
Devon visits Michael and convinces him to join the project, but Michael is furious that KITT has been dismantled. Michael is ready to walk away, but later decides to rebuild KITT's AI unit, which he finds difficult since Maddock has sold most of KITT's technology to medical research. Michael is able to reactivate KITT's logic module and installs him in the dashboard of his 1957 Chevrolet Bel Air.
Shawn quits the police force after she learns her chief, Daniels, didn't want to authorize her brain chip implant, nor get involved in her case. She seeks employment with the Foundation where Michael learns one of KITT's missing cybernetic chips is now in her head. Because of this, KITT is able to link up with the chip through physical contact and extract her missing memories. Shawn remembers that Watts is the one who shot her and that her fellow officers were with him when he did it — including her partner.
Watts learns Shawn is still alive and sends the corrupted cops to eliminate her and Michael, who are easily chased down when they try to get away in KITT. KITT helps them evade capture by driving off a pier where he quickly sinks. Michael and Shawn are kept safe inside the car, but KITT is damaged when water gets into his circuitry. With Watts believing Michael and Shawn are dead, he captures Devon and uses mind scanning technology to discover what Devon knows, killing him afterward.
Michael and Shawn swim to safety and return to the Foundation, learning of Devon's fate. After Devon's funeral, the mayor terminates FLAG's contract. With the Knight 4000's development complete, Michael quits. After Shawn confronts him, Michael returns and secretly retrofits the Knight 4000 with KITT's AI.
Michael and Shawn follow her former partner to a warehouse where the guns are stored. Shawn arranges a meeting and gun transaction with her former partner. She confronts him, but before he can fully cooperate with FLAG's investigation, Watts shoots him. Michael arrives just in time to prevent Shawn from being killed.
Maddock sends KITT a copy of the prison release papers for Watts, signed by the murdered mayor. Michael has KITT print more copies, sending one with a fake signature to Daniels using her name, and a similar one to the mayor, this time with his name. Following the mayor's limo, they record a conversation between the mayor and Watts discussing the release papers.
After showing the police commissioner the video of Mayor Abbey's conversation with Watts, Maddock proposes a pact with the police force. After ambushing a caravan of corrupt cops, they find no guns. KITT informs Michael there is another group of police cars headed for the local mall. Maddock convinces Daniels to allow KITT to pursue them.
When they arrive, Watts has begun a transaction with a gun buyer. When one of the corrupt cops guarding Watts sights Shawn moving in, he shoots her, and then the buyer and Watts flee. Michael catches up to Watts and disarms him. A fight ensues between Michael and Watts, Michael only stopping when Watts picks up his handgun. Shawn (only slightly wounded) arrives with the other handgun, instructing Watts to drop his. Michael talks Shawn down from shooting Watts. Watts then draws another gun hidden under his coat but Michael draws out an ultrasound gun and shoots Watts, who falls to his death.
After Watts' defeat, the mayor is incarcerated, Michael returns to retirement, and KITT remains behind at the Knight Foundation with Shawn and Maddock. The trio continue their police work.
Actor James Doohan makes a cameo appearance as an innocent bystander that KITT mistakes for a criminal stealing money from an ATM. KITT stuns the suspect and the man collapses. When Michael and Maddock pick up the man to arrest him, they find Mr. Doohan, delirious (from being stunned), and mumbling various lines from his role of Scotty on Star Trek.
Knight Rider 2000 was filmed in two Texas cities, San Antonio and Corpus Christi. In some scenes, characters are in San Antonio locations such as Paseo del Río and the Tower of the Americas one moment, and the next they are at the shoreline of Corpus Christi.
The studio was unable to use the real Pontiac Banshee IV concept car for the movie, so instead it hired Jay Ohrberg Star Cars Inc. to customize a 1991 Dodge Stealth for the Knight 4000. The custom car can also be seen, albeit briefly, as a stolen supercar in CHiPs '99, and as a future police vehicle in Power Rangers Time Force.