The Leprechaun is on a desolate planet attempting to court a charming princess named Zarina, whom he has kidnapped in a plot to marry her, then murder her father in order to become king of her home planet, Dominia. A group of space marines attack and the Leprechaun kills one of the marines, Lucky, with a lightsaber-like weapon. When another marine, Kowalski, throws a grenade and it lands near Zarina, the Leprechaun jumps in the way, and, though Zarina is saved, the explosion of the bomb kills the Leprechaun and causes Zarina to lose a hand. While the rest of the crew attend to Zarina, Kowalski relieves himself on the Leprechaun's dismembered leg, and is seemingly possessed.
The marines return to their ship with Zarina, where their leader, the half-robotic Dr. Mittenhand, explains that the princess has regenerative powers (as shown when she regenerates the hand she lost) and his plans to use Zarina's DNA to recreate his own mutilated body. Elsewhere on the ship, the Leprechaun violently emerges from Kowalski's penis when he attempts to be intimate with a fellow marine, Dolores, killing him in an incredibly painful and sadistic manner.
The Leprechaun then kills most of the crew members in other various gruesome and absurd ways. Mooch has his suit sliced open and dissolved into a skeleton, Danny is crushed under a metal structure, Dolores is dropped from an extreme height. Finally, the leader of the marines, Metal Head, is brainwashed into thinking he is a drag queen and has his head cracked open, revealing him to be a cyborg which deactivates after being electrocuted. He finds Zarina in Dr. Mittenhand's laboratory, making his way in by assuming the image of a completely naked Doctor Tina Reeves, kills Mittenhand's assistant Harold by stabbing him in the groin and then flattening his face, and injects doctor Mittenhand with a mixture of his intended bride's DNA and the remains of a scorpion and a tarantula (mixed in a blender), before initiating the ship's self-destruct mechanism. A surviving marine, Sticks, rushes to the bridge to defuse the self-destruct, but he is stopped by a password prompt.
The other survivors, Sergeant Books Malloy and Tina, confront the Leprechaun in the cargo bay, who grows to many times his own size after being exposed to Dr. Mittenhand's experimental enlargement ray. Tina crawls through the air ducts, where her red pants get torn off by Dr. Mittenhand. Tina spends the remainder of the film in a T-shirt and black panties.
Sticks is attacked and tangled in webs by the now mutated and deformed Dr. Mittenhand, now known as Mittenspider, who has taken the shape of a giant spider-like creature. Tina sprays Mittenspider with liquid nitrogen from a hose and then shoots him, shattering his body. Books avoids the giant Leprechaun and opens the airlock so the villain is sucked out into space and explodes while Zarina watches in glee.
Books joins the others at the helm, and they discover that the password is "Wizard," since Dr. Mittenhand previously referred to himself as "the wizard behind the curtain," stopping the self-destruct with only seconds to spare. The three rejoice and Books and Tina kiss as the spaceship flies past the remains of the giant Leprechaun's body. They fly past his fist, clenched with middle finger extended.