At George H. W. Bush State Prison in the Southwestern United States, William "Bill" Boss, a cannibalistic, psychopathic warden, watches the end of The Human Centipede 2 (Full Sequence) with his accountant, Dwight Butler.
Bill receives a threatening prank phone call from an inmate. Bill waterboards him with three buckets of boiling water as punishment, horribly disfiguring him. Governor Hughes arrives, ordering Bill and Dwight to put a stop to the violence and promising that they will both be fired otherwise. In anger and retaliation, Bill orders a mass castration of the inmates, and brutally castrates one of the prisoners himself, then cooks and eats the testicles for "energy food."
Dwight pitches an idea to fix the prison's horrible retention and violence rates to Bill: Suture all of the inmates together mouth-to-anus, forming a giant human centipede, which would be the ultimate deterrent to crime. Bill is skeptical and opposed to the idea. Bill then has a nightmare about being attacked by inmates, and raped by the inmate he castrated. Bill then summons the director of The Human Centipede 2, Tom Six, to the prison. Bill is assured that the films are "100% medically accurate." Six gives the prison permission to use his Centipede idea, provided that he is permitted to witness the operation. The first two films are then shown to the inmates as a display of their future, which causes a riot. Inmates chase Bill and Dwight to the warden's office, where they beat his assistant Daisy unconscious.
Bill goes around each cell and shoots every inmate with tranquilizers, readying them for the operation. Incompatible inmates are shot and killed. They discover an inmate with Crohn's disease, who suffers from severe diarrhea. Bill orders the man who raped him in the dream to be attached to him as an added punishment. Daisy is in a coma, where she is raped by Bill. Six returns to the prison, where he is met by Bill and Dwight. After touring the cells, they discover a mentally unstable inmate eating his own feces wanting to be sewn to the centipede. Bill shoots and kills the inmate, as he does not want anyone to enjoy the punishment.
Upon the centipede's completion, Governor Hughes arrives greatly disgusted at what he sees. In addition to the centipede, a "Human Caterpillar" has been created by suturing together death row inmates, along with those who were given a life sentence, and amputating their limbs. Daisy has accidentally been sewn into the Centipede. Hughes leaves the prison, telling Dwight and Bill they should receive the death penalty.
Hughes then returns to prison with a sudden change of heart, stating that the Centipede punishment is "exactly what America needs." Dwight and Bill celebrate their success. Dwight is then shot and killed for trying to take credit for the idea. A naked Bill screams with joy, overlooking the centipede.
In an alternate ending, Doctor Josef Heiter lays in his bed, implying that the previous events were part of a dream. He finds his three rottweilers, his first centipede creation, deceased. The camera pans over his house and the film transitions into the beginning of The Human Centipede (First Sequence).
