We see Gambol playing pool, when one of his associates enters and tells him that a group of people have killed the Joker. They then tell him that they have the body, and they bring the body in in a bag. When Gambol goes to pay $500 for the dead Joker, the Joker pops out of the bag and holds a knife to Gambol's face. Joker's men then take out guns and hold them up to the heads of Gambol's men.
The Joker tells a story about his scars and his abusive alcoholic father. He tells him that one night, his father came at him and his mother, but that his mother defended them with a kitchen knife. He tells him that his father cut a smile in his face with the knife. At the end of his story, he kills Gambol and offers three of Gambol's men one spot in his entourage. He breaks up a pool stick and suggests that they fight one another to the death for a spot on his team.
Lucius arrives in Hong Kong and gets a meal with Lau. At the front desk, Lucius is required to check his phone, as they are not allowed. At lunch, Lucius tells Lau that he has to cancel negotiations with Lau Enterprises, when suddenly his phone rings. Lau reiterates that cellphones are not allowed, and Lucius apologizes for the error. On his way out, the man at the front desk attempts to give Lucius his phone back, but Lucius declines and the man puts the other cell phone back in a drawer.
When he returns to Bruce, Lucius shows him that the cell phone he dropped off at the front desk has created a sonar map of the premises.
That night, Bruce puts on his Batman suit and infiltrates the premises. Using the cellphone that Lucius left in the front desk, Bruce is able to turn off the power in the building before he breaks in. Inside, Lau becomes nervous and summons his cop force. Suddenly, Batman breaks through the glass of Lau's office and manages to kidnap Lau and escape through the window to a plane flying overhead, using a balloon.
The next morning, Gordon and Ramirez find Lau on the pavement outside his office with a note that says, "Please deliver to Lieutenant Gordon." Inside, Rachel questions him, while Gordon and Harvey listen in in the next room. She insists that he tell her where the money is, but he refuses, saying that his associates will kill him if he gives up any information. When she says she will have him jailed, he offers to give up the mobsters' names, while still refusing to give up the money. "What could you possibly have on all of them that we could charge?" Rachel asks. "I handled all the investments, one big pot," says Lau, which Harvey records as evidence of Lau's criminality. Rachel goes in to talk with Harvey, where they determine that if the mobsters' money is pooled, they can charge all of them at once. Gordon insists that they keep Lau there rather than taking him to County.
The Chechen and Maroni watch coverage of Lau's kidnapping on the television at Maroni's restaurant and discuss the fact that they have to work with the Joker in order to fix the real problem—Batman. Suddenly, Gordon and a group of cops come in and arrest the mobsters.
At the trial of the mobsters, the judge reads the charges against them. In the midst of her papers, she finds a Joker card from a deck of cards and seems confused. Harvey goes to meet with the mayor, who wants to know how he was able to arrest 549 criminals at once. Harvey tells the mayor that he will have clean streets for 18 months, but the mayor warns him that he is making horrible enemies in the mob and anyone else who is in its orbit.
Suddenly, a body smashes into the mayor's window, a man dressed as Batman with a noose around his neck. The police lower the body onto the street below and note that the dead man's face is made up like Joker's and his lips are slashed. A note attached to him on a Joker card reads, "Will the real Batman please stand up?"
At home, Bruce and Alfred prepare for the Harvey Dent fundraiser. Alfred suspects that he is throwing the fundraiser to impress Rachel, but Bruce insists that it is because he likes Dent, when they are interrupted by the news. They watch a video being shown of Joker tormenting the Batman lookalike before killing him. At the end of the video, Joker reveals himself and announces that every day Batman does not turn himself in, he will murder people in the city.
At the fundraiser, Rachel teases Harvey about being nervous at the fundraiser, as Alfred offers him some champagne. Suddenly, a helicopter flies by outside, and Bruce emerges with a group of models. As he enters the room, Bruce belittles Harvey's early political campaigns, before telling the group that he believes in Harvey Dent. "I believe that on his watch, Gotham can feel a little safer, a little more optimistic," he says. Rachel follows Bruce outside, where he tells her he thinks Harvey is just the man to take Batman's place. Harvey comes out and thanks Bruce for the party, before bringing Rachel back inside, where he proposes.
Ramirez visits Gordon and tells him that the Joker card pinned to the Batman lookalike body had the DNA of Judge Surrillo, Harvey Dent, and Commissioner Loeb. Gordon and Ramirez determine that this identifies who Joker plans to target next, and sets about planning to protect them. They're too late to protect Loeb and Surrillo, however. Surrillo dies when her car blows up, just before they take her in for protection, and Loeb drinks poisoned liquor that was put in his liquor bottle.
As Rachel hesitates to give Harvey an answer, Bruce grabs him and pulls him into an adjoining room and locks it, just as the Joker breaks into the party. As the Joker threatens guests, Rachel interrupts him and he goes over to her and holds his knife up to her mouth. He begins to tell her the story of his scars, but this time it is not about his father, but about his wife getting cut up by some gambling sharks. In the middle of the story, Rachel hits him. As he lunges towards her, Batman begins to attack out of nowhere, fighting Joker's men.
Joker gets ahold of Rachel and threatens her with the gun. When Batman tells him to drop the gun, Joker says that he will if Batman reveals his true identity. He then smashes the window, and when Batman tells him to let Rachel go, drops Rachel out of the building. Batman runs after her and grabs her, catching her in time for them to land safely in the back of a cab.
The next day, Gordon suspects Harvey has fled Gotham, but he shows up and brings Lau into court. Meanwhile, Alfred and Bruce discuss Joker's possible motives. Alfred tells Bruce a story about when he was in Burma and government officials were trying to buy over tribal leaders with precious stones. There was one leader, Alfred says, who did not buy into it, and continues to pursue criminal behavior. The moral of his story is that sometimes, criminals are unpredictable.
Batman learns about a plot against Harvey Dent by listening to cellphone frequencies. When he goes to the scene of the crime, he finds two cops have been killed, one with the last name Dent and one with the last name Harvey. Ramirez blames the cops' deaths on Batman, but Gordon tells her to calm down. Batman takes a chunk out of the wall that contains a bullet that might have some evidence, as Gordon finds a newspaper article hinting that Joker's next target is the mayor.
Using advanced technology, Bruce seeks to reproduce the bullet from the murder site in order to produce a fingerprint. He enlists Lucius' help to do so. Before Bruce arrives at Lucius' office, we see Lucius taking a meeting with an accountant Coleman Reese, who believes that Bruce is Batman and has identified a deal between Bruce and the army. He asks for $10 million a year for the rest of his life in exchange for his silence about Batman's identity, but Lucius reminds him that blackmailing an unstoppable vigilante isn't a very good idea. When he meets with Bruce later and locates a thumbprint on the bullet, Lucius asks him about his ties to the military, but Bruce insists that he's playing the deal "pretty close to the chest."
In this section, we get a little more psychological backstory about why the Joker is the way he is. When he visits Gambol in the pool hall, he pops out of a body bag with a knife and tells a story about his abusive father who slashes his mouth to give him a perpetual smile. The story is horrifying and seems to humanize the monstrous villain for a moment, framing him as a victim of abuse. However, at the end, he only pays his abuse forward, slashing Gambol dead in one swipe. In this, we see that the violence the Joker suffered has a child has only reproduced itself in him.
While a great deal of the film is built around the psychological complexities of the characters, the film is primarily an action movie, and much of the narrative is taken up by intense action sequences. These sequences serve to showcase not only Batman's athleticism and physical power, but also the power of the technological tools he has developed for his project as the vigilante of Gotham. Batman is defined as much by his wealth and the sophistication of his gadgets as he is by his agility, and a great deal of the film is spent exhibiting this sophistication.
After Lau's kidnapping, the mobsters realize that they will actually have to work with the Joker. While they initially dismissed him as delusional and ridiculous, when they see just how far Batman is willing to go to expose them and have them arrested, they see that they have no choice but to have Batman killed. The Joker quickly shifts from the character who is taken the least seriously in the film to the most atrocious villain of all. Joker's ascent to master villain is made all the more terrifying by how much people underestimated him hitherto.
The stakes are raised even higher when the Joker enters the public eye and begins beckoning Batman to reveal himself. In a disturbing video that he releases to the press, the Joker torments and kills a Batman imitator and suggests that until Batman turns himself over to the law, he will continue to murder people. This development not only makes the city of Gotham a more dangerous place, but it directly links the Joker's violence to Batman; if he does not reveal his identity, an act which would be life-altering and ruinous to the well-being of the city, the Joker threatens to commit more and more violence.
The film moves at a very quick pace and there are a number of different issues at play at any given moment. Batman must not only keep his identity hidden, but also work on locating the Joker while protecting Harvey Dent and keeping his various business activities a secret. Additionally, he has feelings for Rachel Dawes, who is in a relationship with Harvey Dent. A great deal of the drama of the film comes from the fact that Bruce Wayne must keep a cool head while juggling so many high-stakes and intense situations at once.