The Children of Arkham are a terrorist organization lead by Lady Arkham. Comprised of the victims of Thomas Wayne, their relatives and mercenaries, its goal is to expose corruption in Gotham, get revenge on the responsible parties and bring the city under their control. The group was the first threat faced by Batman and of many to come in the future of Gotham.
Years before the events of the game, Thomas Wayne, Carmine Falcone and Mayor Hamilton Hill convicted many people who refused offers or became a perceived threat to them to Arkham Asylum, a defunct mental hospital that was run for that purpose. To make sure their "insanity" looked realistic, the trio would inject a psychogenic chemical into their victims, which stripped them of moral filters and cause them to act violently.
It is unknown who founded the Children of Arkham, but the group began as a political group with peaceful intentions. Hoping to expose the trio's use of the Asylum, their voice fell on deaf ears. It distributed what happened to the organization, but it eventually fell into the hands of Vicki Vale, the daughter of the Arkham.
Vale reinvented the group as a terrorist organization and adopted the identity of Lady Arkham, a figure she created during her childhood. She tracked down and convinced other Gotham citizens, whose parents or relatives had been wrongly committed to the institute, and hired mercenaries to join her group and take down Gotham's corrupted society. Members who agreed to join included Oswald Cobblepot and Roland Desmond.
Using their vast resources and Cobblepot's ties to the criminal underworld, the group began preparing for an attack on Gotham. They seized up evidence against the Wayne family, including an account managed by Thomas Wayne and Falcone and a video of Oswald's mother being incarcerated in Arkham. Through blackmail, they managed to get Hill to hand over information on his partners, including the warehouse the trio's chemical was stored. Cobblepot also hired the skilled thief Catwoman to retrieve these drives and locate the drug's containers.
At the beginning of the episode, six members of the Children of Arkham broke into City Hall, murdering a security guard on the way. Making it to the 52nd floor, they accidentally activated an alarm and locked down the Mayor's office. Whilst one member tried to break open the lock with a power saw, another placed a bomb on the elevator's cables and destroyed it as it descended to the ground level for GCPD officers.
As got closer to breaking through the lock, the vigilante Batman arrived and subdued one of their members, before moving on to defeat another three. Batman then fought the leader, knocking him out by kicking him through the door, into the mayor's office. The last member, who wielded the power saw, tried to attack Batman, only to be knocked out by the vigilante. Afterward, the GCPD members managed to round up at least five of the members.
The next day, an account managed by Thomas Wayne and Carmine Falcone was released to all news outlets in Gotham. It is likely this information was released by the Children of Arkham, who had sent it anonymously. Later that day, a group of mercenaries arrived at a warehouse owned by Falcone to rendezvous with Catwoman, to provide them with information on the criminal and locate barrels of the psychogenic chemical used to fake psychosis.
When she failed to turn up, they instead raided the entire warehouse, making large amounts of noise and attracting attention. When the police arrived, a shootout arose. One of the snipers shot a barrel of the chemical, obliterating a cop whilst driving another one insane. After the shootout finished, the members that were still alive left whilst the sniper stayed behind to incriminate Falcone. After Batman arrived at the scene and tipped off Lt. James Gordon, he put together a rough recollection of the shootout. Using trajectory points from both the exploded barrel and a dead cop, he located and interrogated the sniper, then left him to be arrested by the GCPD. Batman also can break the sniper's arm.
The following day, one of their members, likely Vale, was present at the GCPD. Intercepting Sgt. Renee Montoya, they injected her with a modified version of the chemical and coerced her into killing Falcone. Montoya followed through and was briefly held in custody for the murder, whilst Oswald Cobblepot, Roland Desmond and a number of members raided the Skyline Club. There, they were confronted by Batman, who suspected Cobblepot to be responsible for Falcone's murder, a fact which he confirmed. After hearing that his men had located Catwoman, Oswald left and ordered a group of his men to find and kill her. The group managed to escape Batman, thanks to Desmond's interference.
Penguin's men later attacked the Stacked Deck, a seedy bar in the Otisburg district, where they had located Selina Kyle. However, they were defeated by the cat burglar and Bruce Wayne, who had warned her of their attack. A group of Children of Arkham members, led by Penguin, also attacked the Mayoral debate between Hamilton Hill and Harvey Dent. Making their presence known, Vale, who had hidden among reporters, was taken to the stage to inject Hill and Dent with the modified drug. Following this, they released footage of Hill and Wayne committing Esther Cobblepot to Arkham Asylum unlawfully.
Whilst the GCPD attempted to stop them, Penguin murdered Hill and attacked Dent. However, due to the intervention of Batman and Catwoman, Desmond, who had been fighting the vigilante, was knocked out whilst he and other members were arrested. Penguin also managed to escape, due to a distraction caused by the GCPD. Dent may be disfigured by Penguin if Batman does not stop him. Following this, the Children of Arkham released the names of Thomas Wayne's victims and swore publicly to open the eyes of the city's civilians.
In the following week, the Children of Arkham began attacking Gotham in ferocity. During the week between their attack on the debate and the events of this episode, Penguin managed to infiltrate Wayne Enterprises as his civilian identity, with his criminal past being covered up by other members. With his new position, as well as being considered for the role as CEO of the company, Penguin was able to gain control of the Wayne Enterprises communications networks, giving access to monitor all lines to the group.
A number of members, including Lady Arkham herself, planned out another attack, this time on Mercy Street, one of Gotham's busiest areas. To prepare for these, they arranged a transfer of the Arkham drug to one of the Skyrail depots. This was interrupted by Renee Montoya, who had sworn to stop them following their use of her as Falcone's unwilling murderer. At the same time, they made another attempt on Dent's life, hoping to murder the new mayor. Depending on Batman's decision, two situations can take place.
Batman chooses to stop their assassination attempt on Dent's life, knocking the assailants out. However, the chemical transfer manages to go without a hitch, as their access to the GCPD's coms allows them to know they are coming and prepare for the attack. The Children of Arkham manage to capture a cop, who they use to test a refined formula of their drug on and later execute when it proves successful.
Batman chooses assist Montoya to stop the transfer, stopping their plans temporarily. However, with access to the GCPD's communication, Dent's assassins are able to know they are coming and prepare for their attack. However, the attempt on the mayor's life is unsuccessful, as Dent goes into a fit of rage and beats one of his potential killers to death.
After hearing members alert the perpetrators of the crime he chose not to pursue, Batman realized the GCPD's communications have been compromised and alerted Gordon. When he learned that Wayne Tech has been responsible, Batman tipped the GCPD off and they removed all Wayne Tech from their operations. With this, the Children of Arkham were unable to monitor their operations, but it also crippled communication between the servers.
The next day, Vale printed a fake interview between her civilian identity and her alter-ego. Hoping to get Batman's attention, she was contacted by the vigilante and the two arranged to meet up at Cobblepot Park. Under the pretense of an interview, she tried to get information about Batman and convince him that the Children of Arkham were a force for good, both of which failed. When Batman was pushy for how she had gotten in contact with the group, she gave him the location of one of their bases of operations.
Vicki then changed into her alter-ego of Lady Arkham and assisted her men in stealing a chemical component needed to create more of their refined drug. With the assistance of Catwoman, they were successful and brought it to the Skyrail Depot in to prepare for their next attack. However, Lady Arkham, having given this location to Batman, revealed the vigilante's presence to her men and took Catwoman hostage. The vigilante revealed his presence and battled the members of the group, as they set the deliverance system into motion, long before it was due.
During a battle of Lady Arkham and with assistance from Catwoman, Batman placed sticky-bombs on the monorail's supports in an attempt to stop them. Managing to do so, he detonated them, destroying the train and damaging the base. Infuriated, Lady Arkham electrocuted Batman with a loose cable and, with members that were neither dead or unconscious, escaped into the night whilst the vigilante and Catwoman escaped together.
In the following days, Children of Arkham attacks dropped, due to the police state imposed by Harvey Dent, who was now insane due to the dosage of the Arkham drug they had given him. The last crime that was reported was the apparent kidnapping of Vicki Vale. Vale later attacked her adopted parents, killing them in revenge for the abuse they had put her through and used her father's warehouses to store the drug.
Using his new position at Wayne Enterprises, Penguin began using the funds and money from the organization to buy and supply the Children of Arkham with weapons and tech. He also installed a Black Box into the Wayne Enterprises networks, hoping to use them to monitor the city and break the inmates out of Arkham Asylum. However, in doing so, Penguin discovered Batman's own computer network was connected to the systems. Deciding to cripple the vigilante's operations, Penguin sent a receiving signal to all his tech, disabling it and infiltrating the Batcomputer.
When Batman found the double murder of the Vales, he reported it to the GCPD. He also revealed Vale's role as Lady Arkham to the group, making her one of the most wanted people in the city. He also revealed that they were stockpiling their drug stash within Vale Heating and Water's warehouse, giving the GCPD the opportunity of crippling Children of Arkham activities. However, Dent received this information through force and, with his own men, destroyed the building, but caused massive casualties.
After discovering how the Children of Arkham were breaking into his network, Batman is also alerted that Dent is trying to attack Wayne Manor and capture Bruce Wayne's resources. He is then forced to choose between stopping Penguin and stopping Dent.
Batman chooses to stop Penguin and the Children of Arkham from hacking his computer network. Making his way though Wayne Enterprises, which is full of the group's mercenaries, Batman fights he way though them and finds Penguin in the CEO's office. After locating the Black Box and defeating Penguin, he leaves them to be arrested by the GCPD.
Batman chooses to stop Harvey Dent and his forces from taking Wayne Manor. Though he is successful, the Children of Arkham are about to compromise his network and disable his technology. Knowing his secrets are at risk, Batman disconnects the Batcomputer, shutting down all his tech.
Depending on the choice made in the previous episode, the Children of Arkham will respond differently.
If Batman chose to stop them from compromising his network, the Children of Arkham remain underground whilst Dent terrorizes the city with this police state. One of their members is captured by Dent's men and held in Wayne Manor. After Bruce Wayne manages to stop Dent down, the member attacks him and is gunned down by the police. In his dying words, he assures Bruce that Lady Arkham has not forgotten him and will take revenge on his family.
If Batman chose to stop Harvey Dent from taking over Wayne Manor, the Children of Arkham reemerge to cause chaos in Gotham. During an attack on Cafe Tistle, they capture Commissioner Grogan, along with a number of other hostages, threatening to execute them unless Batman shows up. The vigilante is able to save the hostages and defeat a number of their numbers, but is incapacitated by a device taken from Wayne Enterprises R&D. Grogan sacrifices himself to save Batman and they other members are arrested by the vigilante.
Knowing the new tech is affective against Batman, Penguin and other members of the Children of Arkham set up a trap for the vigilante in Cobblepot Park. Holding off GCPD officers, Penguin lets his guard down when Bruce Wayne enters the park to confront him. However, the real goal is to distract Penguin long enough for Lt. Gordon to get to the Black Box and disable it. Depending on dialogue choices made, Bruce will either successful in distracting Oswald long enough for Gordon to destroy the Black Box or is unable to do so, tipping him off and forcing Bruce to destroy it himself. Following this, Penguin is crippled in an attempt to kill Bruce and is arrested by the GCPD. As he is take away by paramedics, Oswald promises Bruce that Lady Arkham has not forgotten him and is preparing an attack against him.
Afterward, whilst Bruce was distracted by Selina Kyle, Lady Arkham and other members of the group attacked Wayne Manor and kidnapped his butler Alfred, hoping to kill him in retribution for Thomas Wayne's assassination of the Arkham family. Taking him to the Vale house, they filmed a video for Bruce and forced him to suffer the same abuse the Vales had put Vicki through. They then infiltrated Arkham Asylum and prepared to release the inmates.
However, Batman, having used clues left by Alfred, tracked them down and confronted Lady Arkham. Refusing to stop and talk, she released the inmates of the asylum and promised them freedom if the killed Batman. However, the GCPD arrived, having received a tip from the vigilante, and were able to bring the rioting under control. With the other members being arrested, Lady Arkham fled to the catacombs of the asylum, where she was holding Pennyworth. Followed by Batman, she was defeated in combat and presumed dead after being trapped in a collapsing chamber. With this, the Children of Arkham were disbanded.
All arrested members of the group were presumably sentenced to either Blackgate Prison or Arkham Asylum, for acts such as terrorism, assistance in murder, breaking & entering and other crimes committed by the group.