The film begins where ALF had ended, with Gordon Shumway—otherwise known as ALF, short for Alien Life Form—being captured by the US Air Force's Alien Task Force while attempting to depart Earth. ALF is kept under lock and key at Edmonds Air Force Base under the xenophobic orders of Colonel Milfoil (Martin Sheen), although he manages to charm his airman jailers and convert his cell into a bachelor pad. Acting on his own initiative, Milfoil plans on killing his prisoner under the guise of a beauty treatment, for which he has left a paper trail implicating his aide de camp, Lieutenant Reese (Scott Michael Campbell), setting him up as a scapegoat. They talk about ALF's relationship with the Tanner family, and the Tanners' move to Iceland.
Learning of this, two Air Force scientists—Major Melissa Hill (Jensen Daggett) and Capt. Rick Mullican (William O'Leary)—help ALF escape, going to ground at a cheap motel. After ALF makes a nuisance of himself, he is ordered to go hide in the restroom, reminding him of when the Tanners would do the same. Unwilling to do without his creature comforts, ALF sneaks outside and contacts one of his former guards in an attempt to arrange a supply drop, before mistakenly entering a strip club, assuming from its name that it is an eating establishment that serves cats.
With both the local police and the military alerted, the three of them turn to Dexter Moyers (Miguel Ferrer), a former NASA scientist falsely discredited by the government as part of the anti-UFO conspiracy. His solution is to publicly reveal ALF's existence on global television, removing the US government's credibility and vindicating himself, but Rick grows increasingly uncomfortable with the idea. After accidentally stumbling across a computer file that hints at a deeper agenda, Rick departs during the night. The following day, he contacts a friend at Edmonds, aware that Milfoil will be monitoring the conversation and come directly to him. As predicted, he is arrested shortly after and brokers a deal, exchanging safe conduct for the three fugitives in return for revealing the impending broadcast.
Meanwhile, Melissa learns that Moyers has set up a secret auction alongside the broadcast, intending to sell the alien to the highest bidder. After she refuses to take part, he imprisons her. ALF, unaware of the betrayal, revels in being the center of attention until stage fright and the increasing hostility of his host lead ALF to lock himself in the bathroom, giving the military time to shut down the broadcast. Both Melissa and ALF are arrested, and Milfoil reneges on the deal. In doing so, he unwittingly reveals his murderous intentions on a security recording, which finds its way into the hands of Lt. Reese.
Back at Edmonds, Milfoil gloats that ALF's escape means he will be able to convince his superiors to have the alien executed openly, his hatred being revealed as seeking payback for his mother going mad as the result of alleged alien abduction. However, Reese interrupts a meeting between Milfoil and General Stone to play the tape, revealing the Colonel's malfeasance.
A military panel authorizes promotions for the three officers involved in taking down Milfoil and apologizes to ALF, before declaring him an ambassador to Earth. The scene ends with ALF's usual self-aggrandizing behavior leaving the people on the panel to wonder if they've made the right choice.Paul Fusco - ALF
William O'Leary - Captain Dr. Rick Mullican
Jensen Daggett - Major Dr. Melissa Hill
Martin Sheen - Colonel Gilbert Milfoil
Miguel Ferrer - Dexter Moyers
Liz Coke - Nina
Ray Walston - Motel Manager
Ed Begley, Jr. - Dr. Warner
Beverly Archer - Dr. Carnage
Scott Michael Campbell - 2nd Lieutenant Harold Reese
Charlie Robinson - Dr. Stanley
John Schuck - Gen. Myron Stone
Markus Redmond - Sgt. Rhomboid
Erick Avari - Rocket (voice)
Dell Yount - Dr. Mockton
Michael Weatherred - Murphy
Gregalan Williams - Police Officer
Jeff Rawluk - Card Guard #1
Ahmet Zappa - Card Guard #2
The movie wound up airing on ABC because NBC went back on its word that the last season of ALF would have one extra episode so the storyline could be resolved with a two-part finale. The first half aired, ending with a Melmackian spaceship hovering over ALF, while Alien Task Force operative were closing in from all sides. But despite the flash of "TO BE CONTINUED", the network never allowed any more episodes and left fans furious with that decision, leaving the series on a cliffhanger for over 5 years.
Actors William O'Leary and Jensen Daggett were already working together on ABC, playing husband and wife Marty and Nancy Taylor, brother and sister-in-law to Tim "The Tool-Man" Taylor on the top-rated sitcom Home Improvement.
It was filmed in Henman House, 33583 Mulholland Hwy, Malibu, California (Dexter Moyers' house).