Bare Knuckle III is the Japanese version of Streets of Rage 3. The Japanese version is known for having a more balanced challenge due to some gameplay changes made to the Western version in its localization. The plot was also heavily modified.

The city of Wood Oak recently experienced a catalysmic event. An experimental weapon called "Rakushin" detonated in the city's suburbs, causing the deaths of 30000 people and wounded 80000 more. Alarmed with this terrifying event, the Police Department assigns two of their top detectives, Axel Stone and Blaze Fielding, two of the heroes who saved the city in the past, to investigate the incident and bring those responsible to justice. Meanwhile, tension rises in the Lima Region, inhabited by a number of nations looking for an excuse to start a war. One of the representatives of the Lima countries, General Ivan Petrov has been invited to the White House for peace talks but now he is reported missing. Soon after these events, Axel and Blaze were contacted by a mysterious man named Gilbert Zan, who claims to be the man who invented the Rakushin. Zan claims that his research is being used by the powers who intend to use it for destructive purposes. But can he be trusted? Is the horrible attack that took place in Wood Oak City somehow connected to the conflict brewing in Lima? Why is General Petrov missing? Timing is very suspicious. Is someone using Wood Oak City as a testing ground for their new weapons? Are Lima countries potential buyers? Too many questions, too little time. Every second wasted brings the city one step closer to disaster. Lives of the citizens under your protection, and possibly, millions of others are hanging in balance.