William “Bill” Boss (Dieter Laser), a psychotic prison warden, watches the end of The Human Centipede 2 (Full Sequence) with his accountant Dwight Butler (Laurence R. Harvey). Bill says that he hates the films as his feet are massaged by his assistant, Daisy (Bree Olson). Daisy replies that she enjoyed them. In response, Bill sucks his fingers and inserts them into Daisy’s vagina, telling her that women should not be allowed to voice their opinions. Dwight interrupts, attempting to pitch a “brilliant idea” to fix the prison’s horrible retention and violence rates, but he is interrupted by a phone call.
Bill and Dwight are then summoned to the scene of an assault within the prison. One of the officers has been stabbed by an inmate. For punishment, Bill decides to stamp on the arm of the prisoner (Tommy ‘Tiny’ Lister), exposing the bone and causing immense pain. He promises to do it again when his bones are healed.
Back in the Warden’s office, Bill receives a mysterious package. After Dwight asks what it contains, Bill reveals that it is a jar of specially-imported dried African clitorises, which he eats “for strength.” After eating a few, he receives a threatening prank phone call from one of the inmates (Jay Tavare). Bill waterboards him with three barrels of boiling water, horribly disfiguring him. The inmate tells Bill that he has lost his soul.
Governor Hughes (Eric Roberts) arrives immediately afterwards, 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 castrates one of the prisoners (Robert LaSardo) himself. He covers his face in the blood of the inmate and later eats the cooked testicles for lunch, calling it “Energy Food.” Daisy is forced to perform fellatio on Bill while Dwight is in the room. Upon completing the act, Daisy eats one of the dried clitorises, mistaking them for candy.
Finally, Dwight is able to pitch his idea to Bill. He suggests that all of the prisoners are sutured together mouth to anus, forming a giant human prison centipede, claiming that it will be the ultimate deterrent for anyone considering a life of crime. Initially, Bill is opposed to the idea and dismisses it as impossible. However, Bill then has a nightmare about being attacked by the inmates, expressing weakness, and being raped in the kidney by the inmate he castrated. He then becomes visibly more desperate for a means of protection from his inmates.
When the director himself, Tom Six, is summoned to the prison, Bill warms up to Dwight’s idea after being assured that it is “100% medically accurate.” Six gives the prison permission to use his Centipede idea, provided that he is permitted witness the operation.
The first two films are then screened in the prison canteen, showing the prisoners what is going to happen to them. A riot breaks out, and several guards are injured. Bill and Dwight flee to the Warden’s office as they are being chased by prisoners. The prisoners eventually make it to the office, where one inmate beats Daisy into a coma as another masturbates to the sight. Bill jumps out of the window, just as backup arrives and manages to herd the prisoners back to their cells.
Bill then goes around each cell and shoots every inmate with tranquilizers, readying them for the operation. It transpires that some inmates are not compatible for the centipede; one inmate has a stoma, and another is disabled, so Bill kills them both, by placing his gun inside the inmate’s stoma and shooting him, and then shooting the disabled inmate in the head. They also discover an inmate with Crohn’s disease, who has constant diarrhea. Bill orders the castrated man who raped him in a dream to be attached to him as an added punishment. Bill and Dwight go and visit Daisy, who is now in a coma. Dwight reveals that he loves her as Bill rapes her motionless body, despite Dwight’s protests.
Tom Six returns to the prison, where he is met by Bill and Dwight. Touring the cells, the trio discover a mentally unstable inmate who is eating his own feces and wants to be sewn into the centipede. Not wanting anyone to enjoy the centipede punishment, Bill shoots and kills the inmate. Bill and Dwight observe the operation with Six, who vomits after seeing the death row inmates being dismembered for a “special project.”
With the five-hundred person centipede now complete, Governor Hughes arrives and is disgusted at what he sees. Not only has a Human Centipede been created, but a ‘Human Caterpillar’ has also been created out of the inmates serving life sentences. This is the same as a Human Centipede, only the limbs of the victims have been removed, meaning they cannot move. It is revealed that Daisy has also been accidentally sewn into the Centipede. Hughes concludes that Dwight and Bill are insane and should get the death penalty before leaving the prison in abhorrence.
Bill murders Dr. Jones (Clayton Rohner). Hughes then returns to the prison with a sudden change of heart, stating that the Centipede punishment is “exactly what America needs.”
The film ends with Dwight and Bill celebrating their success. Dwight is shot and killed for trying to take credit for the idea, even though it was his idea in the first place. Bill is then seen dancing and screaming, naked, in the watchtower while watching over his centipede.