Dr. Sadler was the enigmatic organizer of a new Street Fighting competition involving many martial artists, who fought brutal (often fatal) matches - they did not know it but this was all part of an elaborate plan by Dr. Sadler to gain power for himself via taking their power.
When Ryu's younger brother, Shun, was pitted against a near-fearl version of Zangief Ryu intervenes when the monstrous Zangief almost kills Shun in a rage - however in the process Ryu becomes possessed by the evil energy of the Dark Hadou (said to be connected to the demon Akuma) and he almost kills Zangief with a Dark Hadouken, which misses Zangief but causes the building to start collapsing.
Observing this display of power Dr. Sadler desires it for himself and sends Rosanov to retrieve it from Ryu however Ryu succumbs to his rage and obliterates Rosanov with a Shinku Hadouken.
However, while Ryu is distracted, Shun is abducted by Dr. Sadler's other minions.
Following his apparent murder of Rosanov Ryu has completely lost the will to fight. However, Rose appears before him once again, compelling him to save Shun from Sadler and himself. Ryu accepts, but first goes to see Akuma, accompanied by Chun-Li, in his secluded home in the mountains. Once there, Akuma, under the belief that Ryu has come to challenge him at last, attempts to goad him into succumbing to the Dark Hadou, but Ryu refuses, and Akuma orders him to leave. Ryu manages to ask Akuma if he is Shun's father, but Akuma denies it. With this cleared, Ryu decides to travel to Sadler's hideout and rescue Shun himself, accompanied by Ken, Chun-Li, Guy, Dan, Dhalsim, Birdie, Adon, Rolento and Sodom.
As the other fighters battle outside Sadler's lab in the arena, Ryu, Ken and Chun-Li sneak inside to find Shun. The first winner is Birdie, and he is led into a trap which will strip him of his fighting potential, though he is freed by Ken and Chun-Li, who break the other fighters out. However, they are confronted by a very alive Rosanov in the corridor, who makes quick work of the three of them despite their efforts, blowing that part of the hideout to smithereens. Ryu arrives on the scene and fights Rosanov again, realizing that Rosanov is actually an android, and this one is really Shun, who was working for Sadler and luring Ryu into a trap. Shun/Rosanov attempts to goad Ryu into using the Dark Hadou, since he is connected to Sadler and every blow which is landed on Shun/Rosanov will increase Sadler's fighting potential and make him stronger. Ryu refuses, but is eventually pushed over the edge when Shun/Rosanov beats Ken mercilessly and Ken uses the last of his strength for a Shoryuken which does nothing more than dislocate the android's jaw. Finally, Ryu succumbs and fires a Dark Hadouken at the android, freeing Shun and destroying Rosanov once and for all.
With this sudden increase in power, Sadler bursts out of his lab and finally emerges on the battlefield. With Ryu exhausted, Sadler easily takes the upper hand and pummels Ryu around. Ryu prepares to succumb to the Dark Hadou once again, even though Ken and Shun implore him not to. Sadler overwhelms Ryu with a Hadouken, which nearly kills him. Though only Ryu can see her, Rose intervenes, informing Ryu that "you haven't drawn the death card yet". Inspired, Ryu snaps out of the vision and returns to his normal state and fires a normal, Shinku Hadouken directly into a distracted Sadler, who crumbles into dust while openly wondering how Ryu could still surpass him. Shun's injuries, however, are too severe, and as he lies dying, he reveals that he lied to Ryu about being his brother and worked with Sadler so as to raise money for his mother, who still died. As Shun succumbs, Ryu vows never to use the Dark Hadou ever again.