The English title is a word play combining the law enforcement term "internal affairs" with the adjective "infernal".

Over the course of ten years, Chan experiences great stress from his undercover work while Lau quickly rises through the ranks in the police department.

Wong and his team interrupt a deal between Brother Sam and a Thai cocaine dealer after receiving a tip-off from Chan using Morse code.

However, Lau alerts Brother Sam, giving him enough time to order his minions to dispose of the cocaine, eliminating solid evidence of the drug deal.

Meanwhile, Brother Sam sends "Crazy" Keung and other henchmen to confront them after receiving intel from Lau.

It is report on the news that Keung himself was an undercover cop; Sam assumes that he was the mole and that Chan killed him to protect the triad.

Lau retrieves Wong's cell phone and contacts Chan, with both of them agreeing to foil a drug deal by Sam.

Everything seems to have returned to normal – Chan can revert to his true identity as a cop, while Lau has erased his criminal connections by eliminating Sam's triad.

Lee discovers records revealing Chan as the undercover officer; Big B is blamed of being the mole within the force and the case is closed.

In mainland China, an alternate ending for the film was screened, in which Lau exits the elevator and is informed by Cheung that the police have found evidence that he was a mole.

She also confesses that she was the person who ordered the hit on Ngai Kwun, admitting that Hon has no knowledge of this transgression and urges Lau to remain silent.

Wong subsequently makes Chan into an undercover agent for the police, sending him to prison to get close to one of Hon's henchmen, "Crazy" Keung.

Meanwhile, Hon leaks information on criminal dealings to Lau, who is able to apprehend many local gangsters and earn promotions in rank.

During Ngai's next drug deal, a Morse code message from Chan tips off the police about an abrupt change of plans for the meeting, allowing the kingpin to be arrested.

In 1997, Lau is picked as one of the officers to preside over the ceremony signifying Britain's handover of Hong Kong to China.

Wong brings Hon back to Hong Kong under witness protection, but Ngai manages to kidnap his family in retribution.

Moments before succumbing to his wound, Ngai discovers the wire in Chan's jacket and realizes that his half-brother is an undercover cop.

As the handover ceremony takes place, Hon sheds tears over the loss of Mary before hosting a party.

Back at police headquarters, Lau handles a case involving a young woman, coincidentally also called Mary, who becomes his wife in Infernal Affairs.

Undercover cop Chan Wing-yan seeks to uncover the link between Hong Kong triad boss Hon Sam and the mysterious Chinese gang leader Shen Cheng.

His superior, Superintendent Wong Chi-shing, persuades the court to allow Chan to seek therapy, leading him to meet Dr. Lee Sum-yee.

Lau Kin-ming, Hon's former mole in the Hong Kong Police Force, has been demoted to administrative duty pending an investigation into the deaths of Chan and Inspector B.

After months of investigation, Lau is transferred back to Internal Affairs, where he struggles to whitewash his past and cover his true identity.

Lau later learns that Hon had previously planted five other moles in the police force, one of whom might be a fellow Security Division Inspector, Yeung.

Meanwhile, Lau suffers from an identity collapse as he loses track of reality, wrestling with guilt over Chan's death and grappling with his impending divorce from his wife, Mary.

After witnessing an incident where Lau suffers a hallucination, Dr. Lee conducts a hypnosis on him and finds out that he was Hon's mole.

Yeung breaks into Lau's office to find tape recordings of his conversations with Hon, proving that Shen is right.

Lau ends up crippled and catatonic, lost inside his own mind, haunted by the spirit of Mary (Hon Sam's wife, whom he had a crush on in Infernal Affairs II) and locked in his own "continuous hell".

Before the film ends, there is one final flashback to the hi-fi shop scene in Infernal Affairs, where Lau is buying an audio system from Chan.