Angier leaves for America to track down Tesla, for the second section of the narrative, while Cutter stays behind. He was shot by Fallon in the shoulder while nailing the box up, and doesn't want to pursue the secret of the trick any further. Tesla refuses to meet with Angier, and the latter learns that Tesla has run out of funding and is being hounded by his rival, Thomas Edison. Angier assures Tesla that money is no object and Tesla tells him in turn that the machine is already being built.

Borden's private life starts falling apart. He's having an affair with Olivia, and his wife is drinking because of their deteriorating marriage. At one point, he instructs Fallon to deal with his family while going to see Olivia. He appears to genuinely care for both women.

Sarah eventually hangs herself in Borden's workroom, after trying to confront her husband about one of his secrets. In Colorado, Tesla and Alley have been unsuccessfully testing the machine they built for Angier. They've zapped his top hat time after time with an impressive electrical apparatus, but the hat won't move an inch.

Angier comes to the end of Borden's diary and realizes that Olivia actually did betray him. She was in love with Angier, but since he used her as a spy without concern for her feelings, she knew she didn't have a future with him. She gave Angier the diary to prove her loyalty to Borden, who wrote it for Angier. The last entry in the diary tells him that "Tesla" was the keyword to decrypt the writing, which is true, but it's not the secret to the trick at all. Tesla never built a teleportation machine for Borden, and Angier has been sent on a wild goose chase.

He goes back to Tesla's lab several times, where the scientist insists that he is capable of building a teleporter, but he never built one for Borden. He tests the machine again, this time using Alley's precious black cat. Alley warns Tesla not to harm the cat.

Alley, using the cat's beautiful collar, chains the cat to the spot for the experiment, as Tesla thinks it may be a matter of needing something living. The cat does not like the procedure and hisses, but is completely unharmed. However, the cat doesn't move at all, so Angier leaves in disgust. Then the cat is freed and runs out the front door.

As Angier walks back through the woods, we revisit the first shot of the movie: a heap of top hats on the forest floor. And this time, there are two identical (proved by the collar) black cats among them. The machine has been working all along, but instead of moving an object from one place to the other, it creates a duplicate at the destination. Tesla and Alley are amazed, moving from hat to hat and measuring them with calipers. When Angier leaves, Tesla tells him to take his hat. He asks which hat is his and Tesla, smiling for the first time, says "They are all your hat."

Tesla and Alley continue to refine the machine now that they know how it works. They have to leave suddenly in the middle of the night when their lab is burned down by Edison's goons. However, in the care of the hotel manager, Tesla leaves a large, trapezoidal wooden box for Angier, containing the components of the machine with instructions in a note. Tesla's note cautions Angier that using the machine is inviting Angier's doom and warns him to destroy the machine rather than use it.

Angier takes the box back to England and reunites with Cutter. He's ready to perform again, but this time he's extremely secretive about his methods, hiring blind stage hands and not allowing Cutter backstage at any time. As he demonstrates to an influential promoter, he is zapped with electricity from the machine's Tesla coil, disappears from plain sight, and then reappears up in the balcony, appearing to traverse the distance instantaneously.

The show is a hit and Borden is mystified. All he can tell is that Angier's trick involves a trapdoor, but he has no idea what's going on under the stage. Every night, he can see the blind stagehands removing a box from the theater.

A few nights later, at another performance, Borden sneaks under the stage, as we saw in the prologue, and watches Angier fall through the trapdoor into the tank and drown. It's clear that Borden didn't have anything to do with it, and he actually tries to save his rival's life by attempting to break through the glass of the tank with a pipe. Cutter runs down under the stage and gets the wrong idea. Borden is arrested. Angier is confirmed dead with Cutter identifying the body.

In his prison cell back in the present day, Borden comes to the end of Angier's diary, which gloats that Borden is being blamed for his death. Borden believes the diary must be a fake, until he's called out of his cell to say goodbye to Jess and meet the collector who wants to buy his secrets.

The collector, Lord Caldlow, is Angier. Borden is dismayed that he would go so far and involve his child in their rivalry. Caldlow/Angier refuses to help clear his name, and won't even take the secret of Borden's "Transported Man" when bribed, telling him "mine is better." Borden swears he'll get out and have his revenge, promising Jess he'll come for her.

Cutter discovers Angier alive when he calls on Lord Caldlow to offer him the machine, hoping to convince him to destroy it. Cutter quickly realizes that Angier is remorseless about framing Borden. He says he's figured out the secret to Angier's version of "the Transported Man" and thinks he's gone too far.

Borden has one last visitor: Fallon. Borden tells him what he's learned, gives him the rubber ball he sometimes uses for tricks, and tells Fallon to go "live for both of us." Cutter brings the machine to Angier, and as he leaves, we see Fallon arrive to confront Angier. This is intercut with scenes of Borden being hanged. Borden dies just as Fallon shoots Angier. The camera pans up to reveal that "Fallon" has two missing fingers and Borden's face.

Angier finally realizes that the secret of Borden's "Transported Man" was simple: Borden had a twin brother, and they were switching back and forth between the double roles of Borden and Fallon. One of them loved Sarah, and one of them loved Olivia. They both lived half of the same life, never telling anyone in order to maintain the illusion.

In a flashback, it is shown that the unmutilated twin willingly let his brother amputate the ring and pinkie fingers on his left hand so that they could make the swaps without anyone telling the difference. Sarah, in a scene we've seen before, is puzzled and worried as to why the wound looks new and bruised again; Borden distracts her by slamming a fist down and saying they can't afford a doctor.

Angier, who only ever cared about the glory of wowing an audience, went to far more terrible extremes. In his "New Transported Man," he knowingly created a double of himself every time he used Tesla's machine, and he rigged the trapdoor to drown the one onstage. He never knew if he would be the prestige or the man in the box.

The room where the machine is being kept is filled with water tanks, all of which hold a drowned double of Angier for every time he performed the trick. Several times, he mutters to himself a line we've heard before in a different context: "No one cares about the man in the box."

Angier falls and kicks over the lantern as he dies from his wound, and the resulting fire ensures the machine and all the evidence are destroyed. We loop back to the trick with the small birds in the opening scene (though this time, no birds are harmed) while Cutter reiterates the three parts of a magic trick. As Cutter has told Jess Borden, "before the audience can clap, you have to make the disappeared man come back." On cue, her father appears to reclaim her. She runs into his arms, and Borden and Cutter exchange nods.