“The Penguin’s Umbrella” opens with, well, The Penguin’s umbrella as Oswald merrily strolls the streets of Gotham. But no one else is happy about The Penguin’s return. Fish wants to kill the Penguin, and Harvey Bullock wants to kill Jim for betraying his trust. Harvey says that he better not see Gordon again, or he’ll kill him.
Other problems are brewing for Gordon though, as one of Falcone’s men breaks into his and Sarah’s apartment. Harassing Sarah, he waits for Jim to arrive. Jim enters, gun drawn, refusing to go to Falcone. He knocks Falcone’s goons out, and runs away from his apartment. Once they’re at a safe distance, Gordon makes Sarah take the next bus out of Gotham, knowing that Falcone will now target everyone close to him. Gordon promises Sarah that he’ll join her as soon as he makes things right. Gordon’s first move is to return to the Gotham Police precinct, where he takes a blank warrant and starts drafting it out for Falcone.
Elsewhere, Fish begs Falcone to kill Gordon, Bullock, and Penguin. Falcone says maybe, if Maroni is willing, they can get Oswald quietly. For the messier job of getting Gordon, however, Falcone says he’ll put “Victor” on the job. As Fish walks away with Niccoli the Russian, they further plot the Roman’s downfall.
Gordon’s captain questions why he is staying in Gotham, trying to arrest Falcone, when the mob boss clearly intends to kill him. As Gordon fills out the paperwork, Victor Zsasz, a.k.a. Batman rogue Mr. Zsasz, enters the precinct with two aides. Making a grand entrance that only a Batman rogue could, he calls Gordon out. Gordon says that he’ll go to see Falcone, but not on this day. Zsasz, relishing the challenge, retirees that even if has to bring Gordon in alive, he can maim him first. Gordon and Zsasz order everyone to clear the precinct before entering a shootout with one another.
One of the aides nails Gordon in the stomach. Bleeding badly, Gordon flees to the precinct’s parking lot. Zsasz and his henchwomen follow, shooting a fellow GCPD officer who was at the wrong place at the wrong time. Stalking him in between cars in a game of cat and mouse, Zsasz shoots Jim. But before he can grab Gordon, Montoya and Allen peel into the garage. Gordon jumps in their car and makes his getaway. Unfortunately, the injured police officer is left behind. With none to help her, she is helplessly shot in the head by Zsasz. After he kills the officer, Zsasz cuts a tally into his skin, muttering “Number 28.”
Passing out from blood loss, Gordon wakes up in laboratory of a friend of Montoya’s at Gotham University. The physician removed the bullets Gordon took, saving him from death. As Gordon recuperates, he suggests that he, Allen and, Montoya go to Wayne Manor. He believes that it’s the only safe place in Gotham. With Allen and Montoya with him, Gordon tells Bruce that he may not be able to locate his parents’ killers. He offers the concession that if he dies in his mission, then Montoya and Allen will continue the case for him. From here on out though, Gordon says that he must pursue the case on his own.
Across Gotham, Fish asks Maroni to hand the Penguin over willingly, out of respect. Maroni calls the Penguin in the room and asks him to apologize to Fish, and nothing more. Succeeding in angering Fish, Maroni starts a formal war between his camp and Maroni’s. Before she leaves, Fish promises Penguin a fate worse than torture.
Falcone’s first move against Maroni is he stopping a shipment of guns that Maroni was importing. Falcone declares that until Maroni sends him Penguin, Maroni can no longer ship guns into Gotham. Maroni responds by saying that he’ll push back harder. The Penguin assists by offering key intel, which he gained from Fish, to hurt Falcone. The Penguin knows of a secret hideaway containing drugs and money that Falcone operates. Maroni invades the hideaway, murdering all of Falcone’s men—including the double-crosser Niccoli—and stealing all of the money. Maroi's main captain, Carbone don’t like the Penguin’s attitude though, and threatens to kill him for being so distrustful. But the Penguin turns the tables on Carbone. Paying the lower henchmen to betray their friend and hold him, the Penguin stabs Carbone in the gut. As he sadistically murders Carbone, Cobblepot claims that all of Gotham’s underlings only care about money, making them easy to manipulate and control.
With enough blood shed, Maroni and Falcone have a face-to-face. Falcone offers that a truce between the two, and even offers to leave The Penguin alive. In exchange for the Penguin’s life, Maroni give Falcone a waste dump on top of an Indian burial ground.
As Falcone continues his hunt for Gordon, Gordon returns home and arms himself with an automatic rifle and a plan. A drunken Bullock barges in, and though he still considers Gordon a “douche bag,” he says that Gordon has enough moral high ground to keep Bullock's partnership. Bullock further says he’s a dead man anyway, being in Falcone’s crosshairs, and offers to help Jim arrest the Roman the next day. Their first move: arresting the mayor of Gotham—warrant and all—for his role in the conspiracy. Taking the mayor captive, Bullock and Gordon storm Falcone’s mansion and place him under arrest. Brandishing his gun, Gordon says that if Falcone does not cooperate, he will shoot him.
But Falcone says that Zsasz has Sarah, who returned to Gotham for Jim, hostage. If Gordon does anything, Falcone will order Zsasz to kill her. Gordon, unable to tell if Falcone is bluffing or not, doesn’t arrest the crime lord. Turns out, Falcone wasn’t lying. Zsasz really did have a knife to Sarah. Though Sarah is safe, Falcone doesn’t know what to do with Bullock and Gordon. Since Gordon trusted Falcone’s word however, Falcone said that there is still hope for the future police commissioner. The only catch, Falcone says, is that Gordon will soon see that Gotham belongs to men like Falcone, and “the truth.”
Satisfied with himself, Falcone munches on a muffin prepared by Fish’s embedded actress and pretend lover. Falcone goes outside to feed his chickens, where the Penguin arrives to meet him. As the two embrace, they reveal that Penguin is actually double-crossing Maroni AND Fish. In a flashback, the viewer learns that in exchange for his life, the Penguin will tell Falcone everything he knows. His first bit of knowledge: That Fish and Niccoli the Russian are conspiring to kill the Roman. With The Penguin delivering on his promise of a lifetime of snitching, Falcone continues to trust him. They agree that they must let Gordon live for now, knowing that his value as Gotham’s only honest man is too valuable to pass.