In 1984, after aging out of the Sunflower Orphanage, Akira Nishikiyama and Kazuma Kiryu go to Shintaro Kazama to ask him to make them yakuza. Kazama beats them in a fight and forbids them from joining. However, they plead for him to allow them to join, and they are made yakuza, swearing their oaths under Sohei Dojima, the next day.
In 1985, Goro Majima of the Shimano Family and Taiga Saejima of the Sasai Family are oath brothers in the Tojo Clan. Saejima planned on promoting the Sasai Family to a higher position in the Tojo Clan by assassinating Yoshiharu Ueno, the chairman of the Ueno Seiwa clan after he was released from prison. Majima argued that it was a bad idea as they'd both end up in prison, but acquiesced as he considered Saejima the closest thing he had to family. Kazuo Shibata forbid Majima from participating in the assassination. When he refused, Shibata had his men attack Majima. For refusing orders, Majima was sent to a torture chamber known as the hole, where he was chained up and Shibata stabbed him in the eye with a knife. Shibata left Majima to the mercy of Futoshi Shimano, who continued his torture in the hole.
In 1986, after refusing to break after being tortured for a year, Goro Majima is expelled from the yakuza. Tsukasa Sagawa is tasked with keeping Majima on a leash and puts him to work as the manager of his Grand Cabaret Club in Osaka's Sotenbori district. Majima can't leave Sotenbori, as Sagawa has yakuza members stationed all around the district that will kill him if he tries. Meanwhile, a young woman was kidnapped from Sotenbori and was caged, then was purchased by the Korean mafia and forced to become a sex slave.
In 1988, Shintaro Kazama, the Captain of the yakuza Tojo Clan's Dojima Family is in prison, due for release in a year. His adoptive son, Kazuma Kiryu, a debt collector for the Dojima family, is framed for murder after the body of a man he beat in an empty lot to collect a debt is discovered with a gunshot wound in his forehead. The empty lot is being sought by the yakuza families, as it is one of the last undeveloped properties in Tokyo's Kamurocho district during Japan's thriving bubble economy. Kiryu is told that whoever brings the empty lot to the Dojima family will be given Shintaro Kazama's captain position.
In an attempt to protect Shintaro Kazama, as he would be expected to atone for Kiryu's mistakes, Kiryu asks to be expelled from the yakuza so that he can be free to find the killer. After he is kicked out of the Tojo Clan, Kiryu is approached by Tetsu Tachibana, the president of Tetsu Tachibana Real Estate. He is also after the empty lot and claims that Shintaro Kazama asked him personally to recruit Kiryu to help him acquire it.
Meanwhile, Goro Majima continues to manage the Grand Cabaret Club. The club's owner, Tsukasa Sagawa tells Majima that he would be reinstated in the yakuza after making 100 million yen, but after Majima turns the club around and makes the money quickly, Sagawa raised the total to 500 million yen. After threatening to undo a deal that Majima made with a competing Cabaret Club in order to prevent him from making the money, Sagawa gives Majima an ultimatum. If he assassinates Makota Makimura, he will be reinstated as a yakuza, but if he fails then he will be the one who will be assassinated.
After tracking Makimura down to a chiropractic massage clinic, Majima discovers that his mark is actually a young blind woman. The man protecting her, Lee, reveals that she was the woman who had, two years prior, been kidnapped and caged before being purchased and forced to be a sex slave by the Korean mafia. After this abuse, she became blind and was diagnosed with post-traumatic psychogenic blindness. It is later revealed that Makota Makimura inherited the deed to the empty lot. She tells Majima that she became blind after a man sold her into slavery, and the last thing she saw was that he had a tattoo of a bat on his arm. This is later revealed to be the mark of the gang that Tetsu Tachibana used to lead.
While trying to get Makimura out of the city, Lee is killed in a van explosion and Majima is knocked out. She was taken by Masaru Sera, leader of the secret Nikkyo Consortium division of the Tojo Clan. Jun Oda, an employee for Tachibana Real Estate and former member of Tachibana's gang, volunteers to travel with Kiryu to Osaka to meet with Sera and retrieve her. While attempting to find her, Oda is shot and reveals that Makimura is Tachibana's sister. He secretly agreed to a deal with Tsukasa Sagawa of the Tojo clan to kill Makimura since he didn't want Tachibana to discover that he had been the one who had sold her to the Korean mafia.
Oda tells Kiryu to leave him behind to fight off Makimura since he wanted to do something right as he really did care for Tachibana. Kiryu takes Makimura back to Tokyo and Oda is killed by Sagawa. On the way to meet his sister, Tachibana is kidnapped by Sagawa and is tortured. When Kiryu finds him, he is dying. With his last breath, he reveals that he went to Kazama for help finding his sister, and Kazama told him to found a real estate company and to trust Kiryu. Kiryu tries to bring Tachibana and Makimura back together, but Tachibana dies before their reunion. By the time she gets there, Makimura holds Tachibana and cries onto the shoulder of her deceased brother.
After recovering his consciousness, Majima tracks Sera down and learns that Makimura is no longer in Osaka, as she had been given to Kazuma Kiryu of Tachibana Real Estate and was taken to Tokyo. Futoshi Shimano, Tsukasa Sagawa's oath brother, reveals that he is the person who ordered Majima to kill Makimura as he knew Majima wouldn't do it. He planned to use this to his advantage, as she would come to trust the man who risked his life by disobeying yakuza orders to protect her. This would leave her vulnerable to giving Majima the deed to the empty lot in Tokyo's Kamurocho district that she inherited from her recently deceased grandfather. To get the deed, he allows Majima off his leash and has him travel with Sera to Kamurocho to get the deed before Tachibana Real Estate can get it.
However, when Majima reaches Makimura she reveals that she has begun to see light and shadows after her encounter with her dead brother. She sends Majima for food but is gone when he gets back, as she went to get revenge on the three Dojo family men who led to the death of her brother. She tells Dojima that she wants the head of the three men rather than the 1 billion yen for the deed to the empty lot, however, Dojima tells her the deed is worthless as no one knows about the lot and that no one will reveal it after she is dead. Sagawa shoots Makimura, and after everyone leaves, Sera takes her to get medical care.
Meanwhile, Kiryu learns that Kazama's plan was to have Sera of the Nikkyo Consortium get the deed to the empty lot so that he would rise in power to become the Third Chairman of the Tojo Clan rather than Dojima. To prevent that from happening, Dojima sends his men to kill Sera, Kiryu, Nishiki, and any other man loyal to Kazama. After learning this, Kiryu and Majima go to separate locations and get revenge on Dojima and his men.
With Makimura safe, the Nikkyo Consortium is able to get the deed, and the land is primed to become the site of the largest building ever built in Kamurocho, the Millenium Tower. Sera is put in the position to become the Third Chairman of the Tojo clan, after the death or retirement of the Second Chairman, Takashi Nihara. Majima is allowed his freedom and is made yakuza again. With his new outlook after his ordeal, Majima fully embraces his Mad Dog of Shimano personality. Makimura visits the empty lot to honor her brother and sees a mound of dirt on the ground. Digging it up, she finds an old watch with a brown leather band that Majima had left for her.
