The British Navy mount guard over the outposts of the Empire. In the South Pacific, Admiral Sir Charles Cradock commands the 5th Light Cruiser Squadron consisting of HMS Good Hope, Monmouth and Glasgow. The German fleet is sighted under the command of Admiral Graf von Spee, with the vessels SMS Leipzig, Nurnberg, Dresden, Gneisnau and the flagship Scharnhorst. Acting on standing orders, Cradock decides to attack the vastly superior German force but is outgunned and outclassed. During fighting Monmouth is destroyed and flagship Good Hope is also shattered by the enemy force and slowly sinks.

In London, Lord Fisher, the first sea lord, hears of the defeat and orders a counter-attack to be carried out by the new battles cruisers Inflexible and Invincible under the command of Admiral Sir Doveton Sturdee. The ships are refitted in record time at Plymouth and proceed to the South Atlantic in pursuit. Meanwhile, Admiral von Spee is fêted by the German colony at Valparaiso in honour of his great victory. He decides to proceed to the Falkland Islands in order to seize coal supplies and destroy the wireless station at the Port Stanley. Sturdee's fleet arrive and commence re-coaling. The Islands' army volunteers prepare to defend the harbour and radio transmitter. Von Spee orders two of his ships, the Gneisnau and Leipzig, to approach the Islands to make a landing party. From Port Stanley, the enemy ships are sighted on the horizon and feverish preparations ensue. Sturdee creates fake smoke in one of the ships to give the impression that they are fully fuelled and ready for action, while he makes ready his five light cruisers.

They weigh anchor and prepare to do battle with the enemy ships. The vessels Invincible and Inflexible together with HMS Kent, Cornwall, Glasgow and Carnarvon eventually set out in pursuit of the enemy. Realising he is outgunned, Von Spee orders Dresden, Nurnberg and Leipzig to retire. Before reaching neutral ports, they are attacked by Sturdee's fleet, resulting in the sinking of Leipzig and Nurnberg. The remaining German vessels, Scharnhorst and Gneisnau fight desperately but are slowly overpowered. Scharnhorst catches fire and prior to sinking her crew abandon ship. The Gneisnau is scuttled by her crew and her survivors with are saved by the men of Sturdee's flagship.

In London, Admiral Fisher is brought the news of the victory.