One year later, to the day, a crow taps on the gravestone of Eric Draven; Eric awakens from death and climbs frantically out of his grave, trembling and wracked with convulsions. Meanwhile, a criminal gang, headed by T-Bird is setting fires in the city. Eric goes to his old apartment and finds it derelict. He has visual memories of the murders, remembering that those responsible were T-Bird and his gang: Tin Tin Funboy and Skank (Angel David). Eric soon discovers that any wounds he receives heal immediately, and that he, being dead, is now immune to physical harm. He then replaces his burial clothes with dark, imposing attire, and using stage makeup, paints his face in a parody of a porcelain harlequin mask given to Shelly as a gift, decorating his lips and eyes with black, scar-like slashes. Guided by the crow, he sets out to avenge his and Shelly's murders by killing the perpetrators.
The crow helps Eric locate Tin Tin, who is obsessed with knives. They engage in a one-on-one alley fight, which Eric wins by catching a knife and pinning Tin Tin to a wall with it. Eric then kills him by stabbing him with all of his own knives. He takes his coat, leaving a large crow-shaped bloodstain on the wall of the alley. He then goes to the pawn shop where Tin Tin pawned Shelly's engagement ring the year before. Eric forces the owner, Gideon ,to return the ring and blows up the shop, but allows Gideon to live so that he can warn the others. Gideon goes to warn Top Dollar, the local crime boss and T-Bird's superior, who thinks Gideon is making it all up and kills him by stabbing him in the throat with a rapier, sinking it in to the hilt.
Eric finds Funboy getting high in an apartment with Darla . He teases Funboy, having the man shoot him in the hand and pretending to scream in pain for his own amusement. When it becomes apparent to Funboy that Eric cannot be killed, he becomes frightened, and Eric disarms him and shoots him in the thigh, piercing his femoral artery. Eric confronts Darla, making her realize that Sarah needs her to be a good mother. Darla rushes out & goes home. Eric then kills Funboy with an overdose of his own morphine. He visits Albrecht, explaining who he is and why he is here. Albrecht tells him what he knows about Shelly's death and that he watched as she suffered for thirty hours before dying. Eric touches Albrecht and receives from him the pain that Shelly felt during those hours. Meanwhile Sarah and her mother begin to repair their strained relationship which we are led to believe improves thanks to Eric's words. Sarah goes to Eric's old apartment and talks to him. She tells him that she misses him and Shelly. Eric explains that, even though they cannot be friends anymore, he still cares about her.
As T-Bird and Skank stop at a convenience store to get some supplies, Eric arrives and kidnaps T-Bird. Skank follows the pair and sees Eric as he ties T-Bird to the driver's seat of a car, straps explosives to him, and lets the car drive off the pier, where it explodes up in midair and falls and sinks into a harbor down below. Eric leaves a fiery symbol in the shape of a crow burning at the scene. Skank escapes the scene and goes to Top Dollar,who controls all the criminal gangs in the city. Top Dollar and his lover/half-sister Myca have become aware of Eric's actions through various reports from witnesses. Top Dollar holds a meeting with his associates where they discuss new plans for their Devil's Night criminal activities. Eric arrives at the meeting, looking for Skank. Top Dollar orders his men to shoot Eric, and a massive gun fight ensues. Top Dollar escapes quickly with Myca and Grange ,his lieutenant, while Eric systematically kills everyone in the room – the last of all Skank, whom Eric throws out of a window.
Eric, having finished his quest, returns to his grave. Sarah goes to say goodbye to him and he gives her Shelly's engagement ring. She is then abducted by Grange who takes her into the nearby church where Top Dollar and Myca are waiting. Through the crow, Eric realizes what has happened and goes to the church to rescue her. Unfortunately, Grange shoots the crow as it flies into the church, making Eric lose his invincibility. Myca grabs the wounded crow, intending to take its mystical power. Albrecht arrives, intending to pay his respects to Eric, just after Eric is shot and wounded. Top Dollar ties up Sarah and climbs the bell tower as a fight ensues, with Albrecht killing Grange. Just before she is about to shoot Eric, the crow escapes Myca's grip and claws her eyes out, and then knocks her down the bell tower where she hangs on the rope for dear life before she falls to her death. When Albrecht is wounded, Eric climbs to the roof of the church on his own. There, Top Dollar admits ultimate responsibility for what happened to Eric and Shelly. They fight, and in the end, Eric gives Top Dollar the "thirty hours of pain" he absorbed from Albrecht; the sensation sends Top Dollar flying off the roof of the church where he falls and becomes impaled on the horns of a gargoyle. His blood is seen to be coming out of the mouth of the gargoyle. Albrecht goes to the hospital, and Eric is reunited with Shelly at their graves.
Later, Sarah pays a final visit to the cemetery, and the crow, perched on Eric's headstone, gives her Shelly's engagement ring, dropping it in her open hand before soaring over the city and into the night.
