The film resumes with the murder of Sardar Khan by Sultan Qureshi and three of his men. When Danish (Sardar's eldest son), Faizal (Sardar's second son) and Asgar (Sardar's cousin) go to retrieve his body, Danish instantly kills the lone captured killer and vows to kill the other three. Danish and Asgar explain to Faizal that his friend Fazlu Ahmed had doped Faizal with marijuana the night before Sardar's death and had informed Sultan that Sardar would be travelling without bodyguards the next day. Faizal later meets Fazlu, and overhears him on the phone talking to another of Sardar Khan's killers, Saggir. Faizal learns that Saggir would be at the shopping centre the next morning. The next day Danish and Asgar go to the shopping centre, and Danish kills Saggir. Sultan and Fazlu then kill Danish outside a courthouse. At Danish's funeral, Nagma doubts Faizal's ability to exact revenge, but Faizal promises her that he will.

Faizal lies low and waits for right opportunity. When Fazlu wins a local election Faizal meets him on the pretext of congratulating him, but instead beheads him. By doing so, Faizal makes his mark and becomes so feared that illegal iron traders become his cronies. Faizal then makes a truce with Ramadhir Singh. According to their agreement, Ramadhir would provide political support to Faizal's business in Wasseypur on the condition that Faizal would not avenge his father, brother and grandfather. As Faizal's business grows, he marries his sweetheart Mohsina Hamid. Faizal's gang then determines the whereabouts of Sardar's third killer, Khalid, through an aide. Faizal has Khalid's head shaved and then shoots him, enraging Sultan.

Babu Khan (Sardar's third son, known as Perpendicular) and Definite Khan (Sardar's son with Durga) are then introduced. Perpendicular is a 14-year old who manages to get away with looting shops because no one is willing to testify against him in fear of Faizal, and Definite is an up-and-coming goon. Meanwhile, Wasseypur has spawned a new generation of money squandering lobbyists that turn into gangsters overnight. A small-time goon named Shamshad Alam has his own transport business and then moves to trading iron, in doing so making an alliance with Faizal. Shamshad offers to increase Faizal's profits with his astute knowledge of the scrap iron business. However, Shamshad begins to keep increasingly significant portions of the profit for himself. When this is revealed to Faizal, Shamshad goes to the police and provides phone calls as evidence of Faizal's involvement in the illegal iron trade. Meanwhile, local shopkeepers lose their patience with Perpendicular's antics and hire Sultan to kill him. Ramadhir meanwhile is losing his faith in his son J.P's ability to run his empire and J.P often finds himself in line of fire for his inability. This results in waning of J.P.'s prominence and influence.

Sultan's men chase Perpendicular and his friend Tangent after they watch a film. Tangent manages to get back to Faizal's house but Sultan catches Perpendicular and kills him by some railway tracks. Faizal and his gang arrive at the scene and as they are removing Perpendicular's body, the police turn up and arrest Faizal. With Faizal in jail, Definite decides to kill Shamshad before Shamshad tries to fill Faizal's vacant position. However, Definite's pistol jams in the middle of the assassination attempt and he is forced to run. Shamshad and his friend chase him, but Definite manages to jump onto a train. However, the train is full of Indian Army soldiers and Definite is arrested. He is sent to jail, where he meets Faizal.

Ramadhir advises Shamshad to bail Definite out of the jail and then instigate him against his own brother for his empire. Durga worked as a cook for Ramadhir after Sardar's death, and thus Ramadhir feels that he has the influence to put Definite up against Faizal. Faizal is aware of Shamshad's plan and cautions Definite before he leaves the jail. Definite visits Shamshad's office and throws in a grenade, causing Shamshad to lose his leg. Sultan, who was also at Shamshad's office, chases Definite and goes to Faizal's house looking for him. There Sultan doesn't find Definite but finds his sister Shama instead. Although Shama is happy to see him, Sultan shoots her in the head and she falls into a coma. When Faizal is about to be released from jail, J.P cautions Sultan and advises him to kill Faizal in a pre-emptive strike. Sultan along with his gang attacks Faizal's house, but Faizal and his entire family have a lucky escape. As Sultan's gang is leaving, they find a police checkpoint waiting for them and realise that they were double crossed by J.P. Sultan escapes in the ensuing firefight. A few days later, Sultan's men kill Nagma and Asgar in a market in broad daylight. Definite and some other members of Faizal's gang track Sultan to Bhagalpur and kill him. Upon realising that Definite has avenged Danish, Shama, Nagma and Asgar, Faizal tells him to surrender to cement his reputation. With Definite in jail, Ramadhir then aims to create a rift between Definite and Faizal.

Iqlakh, an educated English-speaker, enters Faizal's gang. Iqlakh actually wants wants to exact revenge and is Ramadhir's mole. Iqlakh's father raped a Wasseypur woman in 1985 and when Sardar Khan found out, he forced Iqlakh's father to divorce his wife and marry the woman he raped (depicted in Part 1). Iqlakh is his father's son with the first wife, whom he divorced. Faizal is initially impressed with Iqlakh's skills and is later made aware of Iqlakh's background, but decides to ignore it. Iqlakh has an astute knowledge of business and bags scrap auctions by force. This brings in a lot of profit for Faizal without any risk, and causes him to neglect Definite. Iqlakh advises Faizal to enter politics in order to provide political protection to all his activities. Faizal decides to contest from Ramadhir's constituency to exact his own revenge.

Ramadhir, feeling threatened, tries to use Definite against Faizal. He releases Definite from jail and sends J.P to broker a deal. J.P, however, is tired of his father's insults and wants to use Faizal to kill him. Ramadhir's plan is that Iqlakh will kill Faizal on the polling day and if he is unable, Definite will take the shot. Definite goes straight to Faizal and informs him of the plan. On the polling day Definite's gang disrupts the elections by force in an effort to prevent Faizal from winning. Iqlakh leads Faizal to an isolated place and tries to kill them, but Definite arrives, double crosses Iqlakh and kills him. Definite explains that Ramadhir changed the plan.

Faizal decides to attack Ramadhir. He knows that Ramadhir is meeting with Shamshad in hospital. Faizal, Definite and other gang members take an ambulance with a large cache of weapons and head towards the hospital. They enter the hospital, and Faizal kills all of Ramadhir's men as the police arrive. He lets other civilians out of the hospital but kills Shamshad. Faizal then finds Ramadhir in a bathroom and kills him, emptying multiple magazines of ammunition into his body. In the meantime the police kill most of Faizal's gang. Faizal and Definite, the only survivors, are arrested. En route to prison the police halts at roadside restaurant for refreshments, leaving Faizal alone in the police van. Faizal is then shot dead by Definite. It is revealed that J.P was the architect of the massacre and Definite is seen free, walking towards his mother.

Four years later, Mohsina and Nasir have moved to Mumbai with Faizal's young son. Definite now rules Wasseypur. Nasir describes that Wasseypur was not affected by Ramadhir's and Faizal's deaths and concludes that it is still a battlefield like before.