In the third season, the action focuses back on the street and the Barksdale organisation but expanded the scope to include the political scene.
In addition, a new subplot was introduced to examine the potential positive effects of legalizing the drug trade within the limited boundaries of three uninhabited city blocks — referred to by the malapropism "Hamsterdam."
The demolition of the towers that had served as the Barksdale organisation's prime territory pushes their dealers back out onto the streets of Baltimore.
Avon Barksdale is released from prison early, as promised for his role in unveiling the cause of the inmate deaths.
Stringer Bell continues his reform of the organisation by cooperating with other drug lords, sharing with one another territory, product, and profits. But Stringer's offer is met with a curt refusal from Marlo Stanfield, leader of a new, growing crew.
Against Stringer's advice, Avon decides to take Marlo's territory by force, and the two gangs become embroiled in a bitter turf war with multiple deaths.
Omar continues to rob the Barksdale clan wherever possible. Working with his new boyfriend and two women, he is once more a serious problem for the organisation. In a heist gone wrong, one of Omar's crew is shot and a Barksdale enforcer is killed.
The violence related to the drug trade makes it an obvious choice of investigation for Cedric Daniels' now-permanent Major Case Unit.
Councilman Tommy Carcetti begins to prepare himself for a mayoral race. He manipulates a colleague into running against the mayor to split the black vote, secures a capable campaign manager, and starts making headlines for himself.
Coming to the end of his career, Major Howard "Bunny" Colvin decides to achieve some real change in the neighbourhoods he has long been responsible for. Seeing the spread of drug dealing into previously unaffected areas following the destruction of the towers, he assumes the task of containing the problem.
Without the knowledge of central command, he sets up areas where drug trade would go unpunished and cracks down on any traffic elsewhere. His scheme achieves his aims and reduces crime in his district, but is eventually exposed to his superiors and city politicians, including Carcetti, who uses the scandal to make a grandstanding speech.
With top brass outraged, Colvin is forced to cease his actions, accept a demotion, and retire from the department on a lower-grade pension.
Dennis "Cutty" Wise, once a drug dealer's enforcer, is released from prison alongside Avon. His struggles to adapt to life as a free man show an attempt at personal reform.
Cutty tries to work as a manual labourer and then flirts with his former life, going to work for Avon. Finding he no longer has the heart for murder, he eventually uses funding from Avon to set up a boxing gym for neighbourhood youths.
The detail learns that Stringer has been buying real estate and developing it in order to fulfill his dream of being a successful legitimate businessman. However, his lack of experience in the field leads to failure, so he reluctantly refocuses on the drug trade.
Believing that the bloody turf war with Marlo is poised to destroy everything the Barksdale crew had worked for, Stringer gives Major Colvin information on Avon's weapons stash.
But Stringer is himself being betrayed by Avon: Brother Mouzone had returned to Baltimore and tracked down Omar to join forces. Mouzone tells Avon that his shooting must be avenged.
Avon, remembering how Stringer disregarded his order which resulted in Stringer attempting to have Brother Mouzone killed, possibly still furious over D'Angelo's murder (Stringer having finally confessed the truth), and fearing Mouzone's wrath, informs Mouzone of Bell's upcoming visit to his construction site.
There, Mouzone and Omar corner him and shoot him to death.
Colvin tells McNulty about Avon's hideout, and armed with the information gleaned from selling the Barksdale crew pre-wiretapped disposable cell phones, the detail stages a raid, arresting Avon and most of his underlings.
Barksdale's criminal empire lies in ruins, and Marlo's young crew simply moves into their territory. Thus the drug trade in West Baltimore continues with little change.