Karen (Sarah Michelle Gellar) and Aubrey (Amber Tamblyn) Davis' 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 in the previous film 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."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 (Takako Fuji) pulls Karen over the edge in time for Aubrey and Eason, who are leaving the hospital, to see her land in front of them dead. 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 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 childhood 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.
Eason calls a friend who is more knowledgeable of folklore to understand Kayako's diary. They find out her mother was able to heal people by removing inhabiting evil spirits and feeding them to her daughter Kayako. Aubrey and Eason find a matching photograph and drawing of a traditional archway outside the house where she 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.
Aubrey takes a train and then a bus to Kayako's home. A man on the bus plays peekaboo with some unseen child, but Aubrey doesn't notice it's Toshio's (Ohga Tanaka) reflection. She goes to the house and finds Kayako's mother, Mrs. Kawamata, (Kim Miyori) who says that although she fed evil spirits to her daughter to heal others, she did not make Kayako what she is now. She explains that the events are not about the house, but making others suffer the way she suffered; there is no way to stop it. She then realizes that Aubrey had brought Kayako with her, and Mrs. Kawamata dies.
Aubrey leaves and returns to the cursed house. She calls home and tells her mother Karen is dead. When her mother accuses her of not being "able to do anything on her own," Aubrey tells her she loves her, but her mother has to stop talking to her like that and says goodbye. She goes into the house and sees Karen go upstairs, calling for Doug. Aubrey follows her. Then suddenly, the house appears like what it was when Kayako lived in it. She then sees Takeo (Takashi Matsuyama) reading Kayako's diary.As Kayako turns to run away, her ankle snaps and she crawls down the stairs, but is caught by Takeo who snaps her neck. Comparison flashbacks from Kayako's death show exactly how she was murdered, and Aubrey is able to understand the pain Kayako went through as she shows her how she became evil.
Allison (Arielle Kebbel) is a new student at the international high school in Tokyo, where she meets popular students Vanessa (Teresa Palmer) and Miyuki (Misako Uno). Allison is desperate to make friends so she tries to talk to them, despite Miyuki thinking that Allison has been at their school for only three weeks and Vanessa laughing at her uniform. They eventually decide to take Allison to the Saeki House in order to play a prank on her. While there, Allison and Vanessa head upstairs but Miyuki sees the bath where Toshio was drowned and backs away as something sinister stirs submerged. Vanessa then tells Miyuki to follow her upstairs, Miyuki wants to leave but Vanessa then accuses her of befriending Allison and Miyuki chooses to keep her popularity by doing what Vanessa says. The two girls then tell Allison of the Saeki murders and then convince her to enter the closet Kayako and Toshio's body was stored in, lying by telling her that they have been the only girls brave enough to enter. Allison, thinking that if she does what they say then they will become her friends, enters the closet and the two other girls force then door closed while she is inside. The idea was to take a picture of Allison's frightened face and show their fellow classmates, humiliating her. After Allison screams, the other girls try to open the door but can't as a mysterious force seems to be holding it shut, and Allison is unable to exit the closet until she sees Toshio, who utters his cat-cry, and then Kayako emerges from the attic. Allison screams in horror and Vanessa runs from the house, Miyuki close behind. Allison manages to escape from the closet and follows the other two out.
Later, Allison is in class when she feels Toshio's cat brushing between her legs. She then senses human hands on her thighs. Pushing her supplies forward on her desk, she peers under her desk to find Toshio curled in a ball at her feet. As she jumps up, she realizes that he is not there, causing her to be embarrassed in front of her fellow classmates. As she sits down, she notices Toshio's cat proceeding to a very exhausted looking Miyuki sitting at her desk, Miyuki feels the cat touch her but doesn't make a large scene about it and the two then exchange nervous glances.
After they return to school, all three girls deal with hauntings from Toshio, his cat, and Kayako. After gym class, Vanessa humiliates Allison about taking a trip to the school shrink in front of the other girls. As Allison leaves, Vanessa begins taking a shower in which Kayako haunts Vanessa in a fashion similar to the somewhat iconic scene in The Grudge, Vanessa then sees a ghostly image of Kayako in the locker room that frightens her, causing her to urinate on herself. Miyuki leaves school for an afternoon rendezvous with her boyfriend Michael (Shaun Sipos) at a love hotel. While Michael is in the shower, Miyuki removes her jacket and hair clip before she sits on the large double bed and finds his condom. She gets under the covers waiting for Michael. She then feels something grabbing her beneath the covers. She wriggles and laughs, thinking it is Michael. When she looks towards the bathroom, she sees that Michael is still in the shower, meaning that something else is beneath the covers. Miyuki backs away in terror toward the mirror behind her. Suddenly, her reflection changes into Kayako who then emerges from the mirror and grabs Miyuki, pulling her within the mirror. Michael returns to an empty bedroom.
Vanessa and Allison are later interviewed by the school counselor (Eve Gordon) over the events surrounding Miyuki's disappearance and their trip to the haunted house. Allison is overcome and shouts at Vanessa, blaming her for making her go to that house. Vanessa heartlessly tells her that she wanted to come and Allison bursts into tears and leaves followed by the school counselor, while Vanessa is told to wait in her office. She texts Miyuki, wondering where she is. She waits for the counselor to come back and fiddles with pens and the light. She looks down and notices the lamp is unplugged, but as she goes to plug it in again, she sees Toshio's legs as he runs in front of the desk. The phone starts to vibrate from a call, and as she goes to pick up the phone, she feels Toshio's legs instead on the desk. She cries out in shock and gets out from under the desk, frightened, and picks up the call. Instead of Miyuki, it is Toshio on the other line. Vanessa runs out from school grounds to a phone booth and calls Miyuki. All she hears is the death rattle and Toshio grabs her legs, while she is consumed and killed by Kayako's long black hair.
Allison is again called to the counselor's office, where she reveals her belief that she and anyone who enters the Saeki house have been cursed and will be hunted down and killed by Kayako. The counselor reveals that she went to the house with the police, making Allison believe that she will be Kayako's next victim. The counselor begins acting towards Allison as if she is being stupid. When Allison mentions Miyuki and Vanessa being killed, the counselor smiles and tells her that they are right next to her. The ghosts of Miyuki and Vanessa then appear on either side of Allison (with pale white skin and black rings around their eyes like Kayako and Toshio), glaring angrily at her. Allison screams and falls to the floor. The counselor then turns into a ghost as well and advances on Allison making a loud moaning noise. Allison, completely horrified, runs out of the room screaming.
In Chicago, Bill Kimble (Christopher Cousins) has recently married a woman named Trish (Jennifer Beals), and is moving into the apartment he shares with his daughter Lacey (Sarah Roemer) and son Jake (Matthew Knight). While Lacey and her friend Sally (Jenna Dewan) are friendly with Trish, Jake is distant. The young boy is troubled when the child of his neighbors, the Flemings, moves back in after going insane. At night, he is awakened by a series of loud knockings from the Flemings apartment. Curious, he follows one of the apartments tenants and sees the person, who is wearing a hooded sweatshirt, getting old newspapers from the trash. When the person turns around to leave, Jake hides behind an object. He then notices two pairs of feet following the person out the basement. Jake looks out, only to see that there is no one behind the person. After Bill leaves for work, Jake and Lacey leave for school, and Jake notices that all of the windows in the Flemming's apartment are covered with newspaper. Bill, doubting his wife's fidelity, returns home unexpectedly, under the pretense of having forgotten his keys, only to find Trish on the phone with a coworker she identifies as Nate. It is revealed, that Bill is squeezing his keys so hard that they cut his hands, though Trish doesn't notice.
After school, Lacey decides to show off her cheerleader outfit to Sally, who appears ill (presumably due to the curse). Sally drinks then regurgitates milk. Lacey returns home to find Jake shivering in his closet, afraid because Trish and Bill have been fighting. Jake is again awakened by pounding on the walls, and upon investigation discovers his sweatshirt-wearing neighbor is a young woman, who is banging her arm on the wall as she furiously cuts her own hair. After seeing the ghostly eyes of Vanessa and Miyuki staring in the window, Jake returns home and spends the night with his sister. That night Toshio appears by Sally's bed as she dies after a too large intake of milk.
The next morning, after Trish listens to the banging from next door, she begins to make breakfast in a trance. Bill, all this time having been influenced by the spirit of Takeo, accuses her of having an affair, but she does not respond. After Bill criticizes her for burning the bacon, Trish pours the oil from the pan onto his head before killing him with a blow to the head. Lacey and Jake return home to a dark and messy apartment, while the banging from next door continues. As his sister looks for Bill and Trish, Jake discovers his father's body. Searching for Lacey, Jake finds that she has been drowned in the tub. As he hears Trish calling his name, Jake pulls back the shower curtain to find nothing. An already dead Trish appears in the tub, telling him it's time for his bath, before Toshio pulls her under the water.
As Jake is fleeing his apartment, he hears screams from the Flemings' apartment. The girl in the sweatshirt turns out to be Allison, haunted by Vanessa and Miyuki, from the school in Tokyo. Jake accuses her of bringing something back with her which caused his family's death, and she confirms that "they" have followed her to Chicago. Allison sees Kayako climbing down the hallway stairs, and Jake shortly after sees Toshio inside the hood of Allison's sweat shirt. Kayako's hands emerge from the hood and pull Allison into her clothing, her body disappearing into it. Jake reaches for the sweatshirt as a ghostly hand grasps his arm; Kayako then rises from the hood and lurches towards him as the movie ends.
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