Tsukiko wakes from a nightmare about Tomie's headless body trying to strangle her. At first she thinks the entire events of the previous night were a dream, but she realizes the truth when she sees Tomie's blood all over the floor. Since Daichi and Kimata cut the phone line, Tsukiko goes to find a pay phone, only to come across them beating up Yamazaki, who was asking to see Tomie. They have not burned her head because the "new" Tomie growing from it instructed them to take her home.
Tsukiko takes Yamazaki to safety while Daichi and Kimata are distracted; realizing the pair got away, they plan to kill them. Yamazaki claims that he is no longer under Tomie's spell and wants to confess to the police that he tried to kill Tsukiko. However, he's badly hurt and Tsukiko takes him back to her house, where she discovers that Daichi and Kimata ransacked the place and stole her camera in case she had photographed Tomie's death. Before she can do anything else, her friend Michiko comes over. Michiko thinks that Tsukiko and Yamazaki are dating, and urges Tsukiko to kiss him while he's passed out. Tsukiko decides it's too dangerous to involve Michiko, thus pushing her out of the house.
Yamazaki suddenly says that Tomie is calling to him - Tsukiko thinks he's hallucinating, but he runs through the house looking for Tomie. Sure enough, she is now regenerating out of a large bloodstain on the carpet. Tomie kisses Yamazaki, but then Kimata breaks in through the window with a metal pipe. He wants to kill Yamazaki, but Tomie is angry with him because he broke the window to "her" room and the glass has cut her face. She tells him to leave, so Kimata leaps off the balcony to his death.
Yamazaki tries to tear Tomie out of the carpet, but rips through her re-forming skin and destroys her. Meanwhile, a crowd has gathered around Kimata's body; seeing Yamazaki at the window, they believe he murdered Kimata. The police arrive and see Tomie's blood everywhere. Eventually, they accept Kimata's death as suicide because witnesses saw him jump; however, they don't believe Tsukiko's story about Tomie, who has been seen alive and has withdrawn from school.
Tsukiko decides to quit school and move in with her father. She is also presumably in a relationship with Yamazaki, whom she visits in hospital. The blood-soaked carpet from her mother's apartment is taken to the dump, which Yamazaki can see from his hospital window. To his horror, dozens of Tomies regenerate from the bloodstain, surrounding his window and crying out for him to hold them.