The Grudge 3 begins with the death of the only surviving member of the events that occurred in the Chicago apartment building, Jake. His lifeless body is discovered by his caretaker Dr. Sullivan, who believes his death was caused by a severe hallucination. The news of Jake's death reaches a young woman in Japan, Naoko. Naoko is the sister of Kayako and believes her sister caused the death. She decides to go to the apartment building to stop the spread of the curse once and for all.

Meanwhile, the apartment building is in the middle of renovations in an effort to draw in new tenants. The landlord Max and his two sisters Lisa and Rose, along with Gretchen are the few tenants who remain in the building. Max is on the verge of being fired from his job, while dealing with Rose's breathing condition and Lisa moving to New York with her boyfriend Andy. Lisa doesn't believe Rose when she tells her that she has seen a dead boy around the building.

Eventually Naoko moves into the building now sure that it contains the curse. Lisa meets Dr. Sullivan when she finds her taking photos of Jake's old apartment. She explains that Jake has died and he told her stories of a woman with long black hair and dead white skin, along with a little boy that killed the rest of his family, which she believes to be a fantasy Jake made up because he couldn't deal with the actual facts. Lisa confirms that her sister has also seen the same little boy, making Dr. Sullivan finally believe that Jake's delusions are true. Later, Sullivan is killed in the mental hospital when Kayako breaks her neck.

After several more deaths, Naoko tries to convince Lisa and Rose to partake in an exorcism to rid the building of the evil spirits. At first Lisa is hesitant but after realizing her brother has become possessed by one of the spirits (Takeo) she accepts Naoko's invitation. During the ceremony Naoko warns that it must not be interrupted or the curse will continue. She begins the ceremony and tells Rose that she must drink Kayako's blood to contain the curse. Lisa is afraid and tells Naoko that she will not allow Rose to do this. Unfortunately, the ceremony is interrupted when Max discovers it. Possessed by Takeo's rage he chases Naoko through the building breaking her knee and finally stabbing her in the throat, killing her. At the same time, Lisa is chased by Kayako and trapped in the bathroom, where she discovers Andy. As she holds the lifeless corpse, it turns into Kayako and she is backed against the wall. Rose, hearing her sister's screams, drinks Kayako's blood which causes Kayako to disappear and her to faint. Lisa rushes to her sister's aid bringing her back to their apartment to give her oxygen.

Max, now aware of what he has done, stares in horror at the body of Naoko. He is then visited by Naoko's ghost as her murder has caused a new curse to begin. Naoko kills him by biting out his throat. After hearing his screams, Lisa discovers his body and calls the police. In the final scene, the corpses are brought out of the apartment building in body bags while Lisa and Rose sit in the emergency vehicle. Rose asks Lisa if they will be safe and Lisa assures her that they will be, embracing her. As the camera moves, we discover that Lisa is now hugging Kayako, her curse now contained in Rose's body.