Pasedena, California: A few days have passed since Karen's encounter with Kayako, at the hospital. Karen and Aubrey's (Amber Tamblyn) sick mother (Joanna Cassidy) sends Aubrey to Japan to bring her sister home since she is unable to do so on her own, given her current medical condition.
Aubrey goes to the hospital in Japan, but initially couldn't see her sister due to the language barrier between the nurses (Yôko Chôsokabe, Kayoko Toda and Shuri Matsuda) and herself. Eason (Edison Chen), a journalist who pulled Karen from the fire, happens to be at the desk and translates for her. Karen is at first unsure of Aubrey, but once convinced, she repeatedly asks her sister to get her out of the hospital.
Orderlies strap Karen down to the bed, and when Aubrey leaves the room, her sister whispers, "Aubrey, don't go in that house." Later, the lights flicker in Karen's room. She struggles to get free when a hand grabs her right arm. Karen manages to get free and escape the guard and orderlies. After passing a group of medical staff and seeing Kayako, she ends up trapped in a hallway.
The lights go out one by one, Kayako staggering towards her with the death rattle. Karen manages to get away and on to the roof of the hospital. She hears the death rattle once more and backs away to the edge of the roof. Kayako pulls Karen over the edge in time for Aubrey and Eason, who are leaving the hospital, to see her fall to her death. A horrified Aubrey collapses, while Eason sees Kayako clutching Karen's corpse.
Later, while Eason is in his apartment, he watches one of his interviews with Detective Nakagawa (Ryo Ishibashi) about the original family murder-suicide of the first film. When Eason rewinds and slows the tape down, he is able to hear Kayako's signature death rattle and see her face in the door. He shuts off the television and sees the reflection of Kayako, but when he turns around, she isn't there.
Eason goes over to Karen's apartment to see Aubrey. They talk and Eason explains Karen's behavior, only because he himself feels it. He's been covering the story ever since he moved to Tokyo three years ago. He knows the fire didn't solve the curse, but made it worse.
They go to the cursed house, and Eason tells Aubrey to stay outside the gate. Inside, Eason finds the closet, and inside there is nothing but Kayako's diary. An unseen force flips it to a page with an eye.
Outside, Aubrey hears Karen's voice asking her not to enter the house, but she does when Toshio's hand grabs her arm and pulls her in. Eason comes down and they leave.
At Karen's apartment, Eason is studying the diary, but is unable to comprehend some sections. He calls a friend who is more knowledgeable of folklore to understand Kayako's diary. While he's on the phone, Aubrey looks over Karen's belongings with sadness, not noticing that Kayako stands in the corner.
Now at Itako's apartment, the Folklore Guy (Zen Kajihara) is showing Eason and Aubrey archive footage of an old blind woman going through the ritual of removing evil spirits.
Itako studies the diary and then pulls out references for Aubrey and Eason. They find out about Kayako's mother and her ability to transfer evil spirits. Aubrey notices a matching photograph and drawing of a traditional archway outside the house where Kayako grew up.
The pair spend some time together at Eason's apartment, and when Aubrey falls asleep, he goes into his darkroom to look at pictures he took of the house's exterior. He notices a dark mass in one and develops another, an enlargement of that area. As it develops, the dark mass grows and the chemicals turn black. Kayako's head slowly comes out, and then leaps out and grabs him.
Aubrey wakes up in the morning and finds herself alone. She goes into the darkroom and finds the picture, then notices Eason's body in the corner. She embraces Eason's lifeless body, but he becomes Kayako and his arms wrap around her. Aubrey runs away as all the pictures in the darkroom show Kayako's face.