Months after the events of the original film, Ming suspects a police superintendent as being a new mole for the triads, while years earlier, Yan embarks on his first mission.
Because Chan was being expelled from the school in 1991, SP Yeung Kam Wing graduated, with all police reports distinctions, being the first in whole class. Twelve year later, he was being sent, working to Lau. Ten months after Chan dies, Yeung's spy had blew a case and the spy wish to kill Yeung, but Yeung took his gun and shot him to conclude this failure. Lau gave Yeung car park seat B3A6 when Yeung met Lau. Yeung asked Chan who he is, but Chan didn't remember him. Sam works with Yeung and Lau is recording Yeung's words so that he can sue Yeung. Yeung is a police SP, which is being sent to Sam as the spy from police. Lau doesn't really know Yeung's Police SP position and wish to catch Yeung to the police head. Yeung work with another inspector who is a good friend of Yeung himself. Lau sneaked into Yeung's office, stealing the cassette, and ask the head to tell him that Yeung is the spy of the triad, Sam's triad. The inspector friend of Yeung, without found by Lau, changed Lau's own cassette back to Lau's own player. When Yeung was talking with his staff about the event, Lau brought the head to meet Yeung, and played the tape, because it's changed back with Lau's tape, so Lau ashamed himself instead of able to prove that Yeung is the spy. Lau said why are the police people playing him with this. Yeung, spoke like Chan, Sorry Lau, I am a policeman. Lau said that he is also a police, and shot Yeung's heart. Yeung and the inspector shot Lau back, but Lau succeeded to shoot Yeung's forehead. Yeung was proved deceased with lots of blood. Lau was sent to hospital and met his girl. Sammi told him that her baby is his, and she is able to call Lau as daddy. Ten months ago, when Chan dies, the inspector and Yeung were talking together, Yeung told the inspector that there are still things that need both Yeung and inspector to tackle after Chan die. Inspector cried when he watched Yeung's past. Ten months after, now, Psychologist talked with the inspector after she paid her tribute to Chan, and the inspector paid his tribute to Yeung. Psychologist said that it may be the destiny. Inspector told her that it is chance not destiny. It's always things change human, human can't change things. But Chan, Yeung, Lau had changed some things themselves. Inspector ask Psychologist to let the things to past off, tomorrow still have to face.
In 1991. Yeung Kam Wing and Chan Wing Yan are both police school trainers. Chan was better than Yeung but because of violation of the rules, Chan was being expelled and Yeung graduated with the first in class. Yeung was employed and work in a different department from Lau's. Twelve years later, Yeung met his Chinese inspector buddy, Shen Chen, both of them work under Police, sent to Sam. Chan Jun, Yeung's spy, failed and wish to kill Yeung, but Yeung shot him. Lau arranged the car park seat number B3A6 to Yeung. Yeung asked Chan who he is, but Chan didn't know Yeung. Yeung always met Sam and talk about police secrets, Lau recorded Yeung's conversation with Sam, and call the police head to Yeung's department, so that Lau can see how disgraceful Yeung is when the secrets are found. Shen Chen had changed Lau's tape back into Lau's cassette player, so when Lau play, it was Lau himself talking with Sam. Lau said that he wish to be a good police, wish to be a good person, why the police people always deceive him? Yeung, like Chan, spoke that Sorry he is police. Lau replied that he is also police and shot Yeung until Yeung fell down dead. Yeung said to Chan that in 1991 if not Chan got expelled, Yeung would never got the first in class. Lau met his girl and she got his baby. The psychologist met Shen Chen and talked.
- Infernal Affairs III uses parallel storytelling, flashing between the past and the present.
Five months before Yan's death
Yan (Tony Leung Chiu Wai) seeks to uncover the link between Triad boss Sam (Eric Tsang) and the mysterious mainland triad boss Shen (Chen Daoming). Since Sam's ascension to the seat of triad lord was due to Ngai's (Francis Ng) death (see second film), Sam is suspicious of all those who followed him in the past. He tests Yan's loyalty by asking him to smash an ashtray on Shen's follower during a negotiation, resulting in Yan being arrested by Inspector Yeung (Leon Lai Ming). After being released, Shen smashes a bottle of liquor on Yan's head and called truce between his gang and Sam's gang.
At the same time, Yan is prosecuted by the police for violent behavior. His superior Wong (Anthony Wong Chau Sung) manages to persuade the court to allow Yan to go and see a psychologist instead of being sentenced to prison. Thus we are shown how he met Dr. Lee (Kelly Chen) regularly for psychological therapy. The two subsequently begins a romantic relationship.
Later, Sam asks Yan to deliver illegal arms to Shen but he himself and other members of the gang did not turn up. Yan delivers the cargo but Shen's gang discovers it is just empty boxes and both gangs begins firing gunshots at each other. Shen and Yan shoot each other in the battle, but both aim at the limbs. Shen thus discovers that Yan is a cop just as Yeung arrives at the scene. Yeung then tells Yan that Shen is not Shen (but actually an undercover cop from the mainland). Yeung also tells Yan that it was due to Yan leaving the police cadets that he gained top honours, thus revealing that Yeung knew Yan is a cop. The three shake hands and wait for the mayhem to die down before returning to their bases.
Ten months after the events of Infernal Affairs
Former Triad mole turned top cop Lau Kin Ming (Andy Lau) has been demoted to administrative duty pending the investigation of his involvement in the death of Yan and Billy (Gordon Lam Ka Tung). In a flashback, we see a version of events that transpired through the lie Lau tells the police; Billy was the mole who wanted to kill Yan and Lau was there to arrest him when he shot Yan in the head, leading to Lau shooting Billy.
After months of investigation, he is transferred back to Internal Affairs. He struggles to whitewash his past and keep his cover, while finding out a fellow Security Division Inspector (Yeung) has ties with Shen, the alleged mainland triad boss who had connections to Sam. He tries to determine whether Yeung is another former mole out to execute anyone who could give him away. A battle of wits develops between Ming and Yeung as each tries to learn the other's secret.
Meanwhile, Ming's sense of identity collapses as he begins to lose track of reality, wrestling with his deep guilt in Yan's murder. He has trouble sleeping and is continuously using sleeping pills and is in the middle of going through a divorce with Mary (Sammi Cheng) due to her knowledge of his secret.
Ming sets up security cameras all over the Security Division floor and Yeung's office in order to spy on him. He also steals and hacks into Dr. Lee's computer and finds Yan's file. He learns about Yan and his psychological trauma soon deteriorates to the point where he begins to think he is Yan. He even makes it his own personal mission to apprehend "Lau Kin Ming" and to catch Yeung on behalf of Inspector Wong. After seeing an incident where he holds out his gun and talking to an imaginary person, Lee brought Ming back to her office and hypnotises him. Under hypnosis Ming reveals to a shocked Lee that he is Sam Hon's mole.
Ming continues to suspect Yeung is related to the mainland Chinese gang and Sam. He breaks into Yeung's office and steal tapes from his safe, using his spy cameras to determine the code. He thinks he hears tapes of Yeung relating information to Sam and he leads his team to the Security Division to arrest Yeung, just as Shen arrives. As Ming plays the tape, a conversation between himself and Sam from the movie theatre scene in Infernal Affairs is played and his second-in-command tries to arrest him instead. Ming suffers a psychotic break, asks for a chance to be a good man, but Yeung declares that "I am a policeman." the same way Yan did. Ming finally breaks and yells out "I am also a policeman!" and fires at Yeung's forehead, killing him. Ming is then shot by Shen who snuck a gun behind his back in case a fight would break out and he falls on the floor. Ming then attempts suicide by shooting himself in the neck, but fails.
A series of flashbacks play, revealing that Yeung and Shen, upon the death of their friend Yan, wanted to avenge him by finding out who the mole was. Shen suspected Ming and set up a ploy to lure him to them. Yeung broke into Ming's office and found the tapes of Ming's conversations with Sam, proving Shen right. Yeung subsequently put the tapes inside his safe.
Yeung is buried next to Yan in the police cemetery. Shen and Lee pay their visits. Shen said to Lee: "Events change men, but men do not change events. But these two men are extraordinary because they changed events."
Ming ends up crippled and catatonic, lost inside his own mind, haunted by the spirit of Mary Hon (Carina Lau) and locked in his own personal "Continuous Hell". His divorced wife Mary visits and tells him, "Our baby can say "papa" now." As the picture fades into the next scene, the camera pans down onto Ming's finger, which is tapping out in Morse Code, "H-E-L..." (and then the start of another 'L' as the picture dims).
But right before the movie ends, it returns to one final flashback of after the incident with the failed cargo trade between Yan and Shen. Yan reports his findings to Inspector Wong on the phone as he's walking through the busy streets of Hong Kong. He enters an electronics and music store, where he finds a bag of cocaine in one of the speakers. Suddenly, Ming (Andy Lau) comes in and wants to buy an audio system...