Plot

The Seventh Doctor and his companion, Ace have landed the TARDIS in London, 1963, where the Doctor has unfinished business: the Hand of Omega, an all powerful, ancient relic of the Time Lord civilisation that the Doctor hid on Earth during a visit to 1963.

Unfortunately, the Daleks have also heard about the Hand of Omega, and are trying to find it before the Doctor does. To complicate matters, there are two groups of Daleks at work — the Daleks are currently in the midst of a civil war between those who accept and those who reject the leadership of their creator, Davros. Each side wants the Hand for itself.

In the meantime, the alien activity around the Coal Hill area has attracted the attention of the military. Group Captain Gilmore and his unit engage a Renegade Dalek at the junkyard. The Dalek proves to be more than a match for the military squad until the Doctor destroys it with a timed explosive. The Doctor tries to convince Gilmore and his scientific advisor, Professor Rachel Jensen, that the Daleks are extra-terrestrial and human weapons are no match for Dalek firepower. The best thing they can do is just make sure that all ground and air forces stay out of the crossfire whilst the two factions blow each other to bits. The Doctor, however, is playing a deeper game — he wants the "right" Daleks to take possession of the Hand. He and Ace investigate Coal Hill School, where the Imperial Daleks have set up an outpost. The Renegade Faction, however, have their base in a warehouse where a Battle computer is and where Mr. Ratcliffe and his group of fascists called 'The Association' work for the Renegade faction. However, a secret agent of The Association, Mike Smith, is found and interrogated by the Imperial-Dalek-controlled Headmaster of Coal Hill School. Mike Smith, however, is not without his reflexes and subdues the Headmaster, forcing the Imperials to 'terminate agent'.

Whilst the Imperial Daleks are watching from their Mothership, the Renegade Daleks dispatch Ratcliffe and his men to retrieve the Hand Of Omega after the Doctor places it into a cemetery. Although they haul it out of the cemetery, the Imperial Daleks aboard the Mothership detect this. A Dalek calls the Emperor Dalek to assess the situation. After a skirmish with the Imperial Daleks during an attempt to retrieve the radio, Ace does some 'Dalek hunting' with the Doctor. They come across the Renegade Daleks' HQ. The Doctor shows Ace the Battle Computer. He tells her that if the Daleks are over-reliant on rationality and logic, the solution would be to get a young, imaginative child to enslave to the battle computer. The Doctor tinkers with the Time Controller to 'manipulate the enemy'. His plan works, but with consequences; the Renegade Daleks return to the base to find the Time Controller has been disabled. The Doctor and Ace flee, pursued by Renegade Daleks. They meet up with the ICMG and tell them the situation, only to find the Rengades are still on their tail. Three soldiers try to fend off the Renegade attackers, only to be obliterated. The Imperial Daleks' Assault Shuttle lands on Earth as part of a mission to retrieve the Hand of Omega, resulting in the Supreme Dalek, via the Battle Computer, ordering the Renegade Daleks to withdraw and defend the Hand of Omega from the enemy. After Imperial Daleks are sent out to retrieve the Hand of Omega, the Doctor, Ace and ICMG invade the Imperial Dalek Shuttle. They find out that the Imperials have control of the planet Skaro. The Doctor disables the massive ground defence and gets out of the Assault Shuttle with the team.

As Renegade and Imperial Daleks patrol the streets, a battle rages in London. A pair of Renegade Daleks locate an advancing Imperial Dalek Squad. They all open fire until a Renegade gets the first hit, followed by the Renegades taking a few Imperial Daleks out as they are forced to retreat from the slaughter. At first, the Renegades are winning until the Special Weapons Dalek is brought in and blows the Renegade patrols to smithereens.

Realising that Smith is Ratcliffe's agent, Gilmore detains him. The Doctor decides to use the remains of the Transmat in the cellar as a communications link with the Mothership.

Smith escapes to the Renegade base, finding Ratcliffe a prisoner. The repaired time controller powers up, enabling the Renegades' escape, but the base is attacked by the Imperials, who overwhelm their few remaining opponents with the help of the Special Weapons Dalek. Ratcliffe and Mike flee with the Time Controller, and the Supreme Dalek orders the controlled girl to recover it. Using her Dalek-augmented abilities, she kills Ratcliffe and pursues Smith. The victorious Imperials return to the shuttle with the Hand of Omega. Meanwhile, the Doctor tells Ace to follow Smith.

The Imperial Emperor is informed of the recovery of the Hand of Omega. Soon after, the Doctor contacts him, and demands the surrender of the Hand. The Emperor reveals himself as Davros. He declares his scheme to use the Hand on Skaro's sun, granting the Imperial Daleks the power to overthrow the Time Lords. The Doctor insults Davros and his Daleks, angering Davros, who replies "Do not anger me, Doctor! I can DESTROY YOU! AND THIS MISERABLE, INSIGNIFICANT PLANET!" The Doctor replies with further insults, infuriating Davros into unleashing the Hand.

It turns out that the Doctor booby-trapped the Hand: It creates a supernova, obliterating the Daleks' homeworld. The Hand smashes back into the Imperial Mothership, but not before Davros threatens to destroy the Doctor's home planet and flees in an escape pod. The Doctor declares that the Hand is travelling back to Gallifrey.

Ace is captured by Smith, who is still holding the Time Controller. The girl tracks him down and kills him before turning her attention to Ace. The Doctor seeks out the Supreme Dalek, telling it that it is the last Dalek on Earth. Convinced of its absolute defeat, it kills itself, breaking the link with the controlled girl.

At Smith's funeral, Ace wonders if what the Doctor did was good. "Time will tell," the Doctor replies. '"It always does."