Two years have passed since Max Payne first embarked on his desperate quest for revenge. Returning to his former position as a detective in the New York City Police Department, Max is assigned to investigate a series of murders carried out by group of contract killers known as the Cleaners. Unexpectedly, Max encounters the enigmatic Mona Sax, whom he assumed dead. People from his past begin to return one by one, and Max gradually realizes that he did not know everything about the mysterious Circle and those who were involved in the murder of his family. Somebody out there is trying to kill Max, and he must find the answers before they succeed.

Max Payne 2: The Fall of Max Payne is a direct sequel to Max Payne. The game is very similar to its predecessor in gameplay concept and presentation, bringing back noir detective atmosphere, cinematic John Woo-style action, and cutscenes shaped like comic book panels.

The game is built on the same engine as the predecessor, with several additional special effects and enhancements, such as dynamic shadows and lighting, cubic mapped reflections, and high resolution textures. The Havok engine with ragdoll physics is used to enhance the interactivity with the game world: objects can be moved and destroyed, physically responding to the actions of the player character and opponents.

A new feature in the sequel is the possibility to use secondary weapons alongside regulars guns, namely melee strikes, grenades and Molotov cocktails. Certain characters will join Max and fight on his side from time to time. The player also controls Mona Sax during a few stages. The Bullet Time feature from the previous game has been upgraded to version 2.0, in which Max's speed in bullet time increases as he gets more kills consecutively.

During the first playthrough the game only offers one difficulty level. If the player struggles to succeed, the game will automatically lower the difficulty, reducing the effectiveness of enemy fire and increasing the amount of painkillers. Additional difficulty levels are unlocked when the player completes the game, as well as two new modes: New York Minute and Dead Man Walking. The first awards the player with a score for completing a level as quickly as possible, while the second has Max fighting endlessly respawning enemies.