Two ferries leave the city, one with Gotham residents and the other with the criminals that Harvey locked up. As the ferries cross the river, the power goes out onboard and the engines fail. Onshore, Batman notices that there is something going on on the ferries and calls Lucius.
On the ferries, the crew notices explosives and a detonator in a wrapped package. The Joker comes on the loudspeaker and tells the passengers on the boats that they are going to be part of a social experiment. Back at Wayne Enterprises, Lucius listens in, as Joker tells the passengers that if any one of them tries to escape the boat, they all die. "Each of you has a remote to blow up the other boat," he says.
While listening, Lucius determines Joker's location, the Prewitt Building, and Batman speeds over there on his bike, notifying Gordon of the location as well.
The Joker tells the boat passengers that he will blow them all up at midnight, unless one of them decides to blow up the other boat. As Joker hangs up, chaos breaks out. Many of the civilians want to blow up the prisoners, convinced that the lives of prisoners are less valuable.
Two-Face holds Ramirez at gunpoint and makes her call Gordon's wife. She tells Gordon's wife to take the kids away and bring them to the spot where Rachel was killed. When she hangs up, Two-Face tells her he is disgusted with her for bringing Rachel to the Joker's chosen location. She begs him to understand and tells him that Joker's men got her early on and offered to pay her mother's hospital bills. When Two-Face flips a coin, he decides to spare Ramirez's life, and simply knocks her out with his gun.
Gordon and the other cops locate the hostage hospital bus, which has unloaded at a large warehouse with giant windows. From a neighboring building, Gordon can see inside. As they plot to free the hostages, Batman appears and tells them that it will not be simple. Gordon, angered, suggests that they have to act fast, so that the people on the ferries do not blow one another up.
Batman insists to Gordon that he needs five minutes alone with the hostages and Joker, but Gordon becomes furious, pulling out his gun and telling Batman that they have to save Dent, whom he believes is being held hostage. Before he can stop him, Batman soars down to the warehouse and attacks the clown cronies standing guard. He communicates with Lucius who tells him where everything in the warehouse is: there are hostages and clowns on 2 floors, and a SWAT team on the stairwell and roof.
On the roof, Gordon gets a call from his wife telling him they're in trouble. She tells him that Two-Face has the kids and Two-Face takes the phone from her to talk to Gordon. "Harvey, where's my family?" asks Gordon, and Two-Face replies, "Where my family died," before abruptly hanging up.
The SWAT team breaks into the warehouse, when suddenly, Batman unmasks one of the clowns and it appears to be a hostage. He realizes that the people in clown masks are actually hostages and the people who are dressed as hostages are Joker's goons. He beats down some of the SWAT team to save the real hostages, before making a quick getaway. Lucius then informs Batman that some clown goons on the floor above are waiting to ambush the SWAT team that is coming up the elevator.
With five minutes to go, neither of the boats have pulled the trigger on the other, even though the boat of civilians has voted to detonate the boat carrying prisoners.
Meanwhile, Batman sabotages the efforts of the SWAT team members in an effort to prevent them from killing hostages, before going to find Joker. When he finds Joker, he asks where the detonator is, but Joker sends some dogs to attack him and beats him with a pipe.
When Joker pushes Batman to the edge of a nearby window, representatives on each of the ferries step up in an effort to detonate the other boat. Joker waits for the boats to detonate one another, but they do not, much to his surprise and seeming disappointment. "What were you trying to prove? That deep down, everyone's as ugly as you?" Batman asks the Joker.
Joker pulls out the detonator and begins to tell Batman how he got his scars, when Batman shoots darts at him and throws him over the side of the building. Before Joker crashes to his death, however, Batman spares him and lets him hang upside down from a wire before pulling him back up. While hanging in front of him, Joker says that his actual plan was to corrupt Harvey Dent, who is becoming an evil supervillain. "You didn't think I'd risk the battle for Gotham's soul in a fistfight with you? No. You need an ace in the hole. Mine's Harvey," says Joker. When Batman leaves to go look for Two-Face, the SWAT team captures Joker.
Gordon goes to the location that Two-Face gave, and Two-Face knocks him to the ground upon his arrival. He then takes Gordon's son and is about to flip a coin for his life when Batman arrives and urges Two-Face to hold the people who killed Rachel responsible rather than Gordon. Batman tells Harvey that he was the best of them, and that Joker wanted to prove "that even someone as good as you could fall."
Two-Face flips a coin for Batman's fate and shoots him. He then flips the coin for his own life, but it lands on the clean side. As he goes to flip it for the fate of Gordon's son, he tells Gordon to tell his son that everything is going to be alright, since that's what he had to do with Rachel. When Two-Face flips the coin, Batman tackles him before it can fall and pushes him over a ledge, saving Gordon's son. At the last minute, Batman also falls from the ledge. Down below, Gordon examines Batman and rolls him over.
Batman is still alive, and sits up, and they discuss the fact that Joker won, because he corrupted Harvey, who was such a beacon of hope for the city. If the citizens of Gotham were to learn what happened to Harvey, his legacy would be tarnished, so they decide they must keep it a secret. Batman says he is not a hero, but Dent was. "I'm whatever Gotham needs me to be," says Batman suggesting that he will take the fall for the murders Harvey committed in order to save Harvey's reputation.
We see Gordon delivering a glowing eulogy at Harvey Dent's funeral. In voiceover, Batman tells Gordon to hunt him down. "Sometimes truth isn't good enough. Sometimes people deserve more," Batman says, and we see Alfred burning Rachel's letter to Bruce.
Just when the Joker's ruthlessness and senseless evil seems like it cannot get any worse, he escalates it more. His preferred method once again is a sadistic social experiment in which he pins two different boats against one another, equipping them with the power to blow one another up. By creating this perverse "social experiment," Joker continues to try and prove that his strange and evil methods are simply an extension of regular human nature, that he is, as he told Two-Face, "ahead of the curve."
As the end of the film approaches, everything gets more complicated and the stakes get higher. There are two boats in the middle of the river that are on the verge of blowing each other up, as well as a warehouse filled with hospital patients being held hostage by Joker. Additionally, Two-Face has emerged as a new villain looking to avenge the death of Rachel by hurting Gordon's family. The level of danger has heightened to an incredibly tense extent, raising the stakes so that hope looks bleak for Batman and his associates.
The scenes that compose the end of the film are mostly action sequences rather than conversations. They are fast-paced and high-impact, and the narrative moves at such a clip that the viewer must pay extra-close attention to the details in order to understand the ever-shifting conditions. In this way, the viewer becomes aligned with Batman and the other characters fighting for good, in that one must stay alert to all of the alternate threats and opportunities that arise, as they arise.
The Joker suffers a rude awakening when his plan to have the two ferries blow each other up goes awry. While it seems as though the people on the boats will try and destroy one another, when midnight strikes, nothing happens. Batman points out that Joker was only trying to prove that other people are just as ugly inside as he is, but his social experiment failed. Joker's myopic belief that everyone else shares his twisted inner life is his greatest misperception, and he is proved wrong in this theory when neither the prisoners nor the civilians are able to exterminate one another.
Batman claims he is not a hero, yet he acts heroically throughout the film, even going so far as to sacrifice his own reputation to keep Harvey Dent's fall from grace a secret. Gordon and Batman decide that it would be best if the citizens of Gotham never learn about what happened to Dent, so Batman suggests that he will take the blame for the murders Dent committed. Batman's heroism rests on a kind of dramatic irony, in which the viewer understands the magnitude of his sacrifice, but the citizens of Gotham have no idea.