At the end of TDK, Joker got moved to an asylum in Coast City. He escaped and becomes their clown prince of crime, but kept a friendship with a female cop who was interested in figuring him out and trying to see the good in him.
However, a new tough police chief is cleaning up the town, and he uses Joker's cop friend to lure him to a warehouse, where he beats him in front of all the other cops, thus weakinging Joker's status in front of them forever.
He then takes Joker to his secret cliff top prison out of town, where he leaves him with a TV, so Joker has to watch in horror how clean and ordered the town is becoming under the Chief.
Joker finds out from the other prisoners that there is one way out back onto land, but you have to cross stepping stones over lava. You have to cross them in a random and chaotic way, and no one has achieved it yet, because people try to go in a straight logical line which is the trap. But Joker manages it and emerges revitalised with new hope.
He goes back to Coast City and with his new vigor, finds his old sidekick Harley and beats the police chief in front of the town. But there's a twist - the chief re-habilitated Harley, and she stabs Joker in the back.
Luckily they are blown away by a blast. Joker looks up - it's his hot cop friend - she can't resist being crazy like him anymore, and has cut her face to match him so they can run away together.
The story ends with Maroni (having survived the crash in TDK) sitting outisde a bar in Madrid. "That Joker kid was so wild, I liked him, but I hope he found some peace and took a vacation". He then looks up to see Joker and the sexy cop, with make up to hide their scars, smiling at him from across the tables. He raises his glass to them with a chuckle.
But their was one kid in his gang who impressed Joker and had that anarchy in him. He gets message to go to the old butcher hideout. There waiting for him is the razor.