After a struggle he opens the boot to reveal the remains of Fred Krueger rapped in a sack. Donald tries to escape but Neil has the keys and tells him he is going to attend a funeral, "one that is long overdue." He throws him a spade. Nancy and the others reach the bottom of the staircase to find Joey suspended over a hell pit. Freddy appears and when Nancy tells him to let Joey go, he undoes the tongue bindings. Nancy reaches Joey just in time to stop him falling. Kristen attacks Freddy as Kincade pulls Nancy and Joey to safety.
He strikes Freddy with a length of pipe and when Freddy grabs him by the throat Nancy drives a thin lead pipe through him. His shock quickly turns to a sinister smile and still holding Kincade by the throat he pulls it out, discarding it. Nancy cannot believe how strong Freddy has become. He informs her that the souls of the children make him strong, pulling aside his sweater to reveal the faces of screaming children on his torso. Then he disappears.....causing Kincade to fall to the floor.
In the real world at the salvage yard, Neil and Nancy's father have dug a grave. They stop when Neil hears noises and after Donald assures him that they are alone, all the cars come to life, lights flashing, boots and doors flapping and horns blasting. Donald screams "Bury the fucking thing!" but as Neil approaches the remains the skeleton reanimates, taking swipes at him with his bladed hand.
Donald stands, shocked. "It's really you....I killed you once before you son of a bitch!" Donald attacks, but ends up impaled on a spike of metal. Neil attempts to fight Freddy but is hit with the spade and knocked into the grave. Freddy begins to shovel dirt onto him, as he lies unconscious.
Laughing, the skeleton collapses and Freddy returns to the dream realm. Nancy, Kristen, Kincade and Joey are walking along a corridor, papered in red and decorated with mirrors. A large mirror appears, blocking their path and then Freddy appears. He apologizes for keeping them waiting and says "If only there was more of me to go around?!"
His image then appears, laughing in all of the mirrors. Joey backs into a corner, clearly scared. The Freddy's grab the others, dragging them into the mirrors. Joey stands and screams "NO!!" All the mirrors smash, freeing the others. They believe it to be over. Nancy's father appears, telling her he has crossed over but couldn't go without telling her that he was sorry for all the things he had done, and that he loves her. Nancy embraces her father then gasps as her father turns into Freddy and plunges his claws into her stomach.
"Die!" he snarls as Freddy pushes the blades in deeper. Neil finally awakens, semi buried in the grave. Kristen screams and Freddy causes the door behind her to close, separating her from Kincade and Joey. "You're mine now, little piggy!" He tosses Nancy aside and knocks Kristen to the floor. Holding his arm back, he is about to stab her when Nancy grabs him, forcing his blades into himself instead.bNeil climbs out of the grave, kicks in the bones of Krueger and splashes them with holy water. As he does, rays of holy/spiritual light appear on Freddy's torso.
Nancy is once more tossed aside, landing by Kristen. Neil continues to splash holy water, "Ashes to ashes, dust to dust, I lay this spirit to rest." He places the crucifix on his head, causing Freddy to spin and explode in a ball of golden light, a cross of light on his forehead. Kristen sobs as Kincade breaks down the door. Kristen says she won't let Nancy die and will instead dream her into a beautiful dream. Kristen holds Nancy's dead body. Kincade, Joey, Kristen and Neil all attend Nancy's funeral, Neil with a sling on his arm.
Neil turns to see the nun, Sister Mary-Helena walking through the graveyard. He follows her but before he can speak to her she disappears. Neil looks down at the grave he is standing on to see it is Amanda Krueger's and also bears the name Sister Mary-Helena, revealing the nun to be the ghost of Freddy Krueger's mother. Neil sleeps as the shot reveals that he is now in possession of the Malaysian dream doll and Kristen's model of 1428 Elm Street. As he sleeps, the bedroom light in the model comes on.