A gang of heavily armed men scour and finally narrow down on a house in Wasseypur. They surround the house and unleash a wave of bullets and grenades on it with the intention of killing the family inside it. After heavy firing on the house, they retreat from the crime scene in a vehicle, convinced they have killed everyone within. The leader of the gang then calls J.P. Singh on his cell phone and reports that the family has been successfully executed but he is double crossed by JP Singh as a fire fight erupts between them and a police check post blocking their escape route. The scene cuts abruptly for a prologue by the narrator, Nasir. The whole scene is then revealed in the sequel.
Nasir's narration describes the history and nature of Wasseypur. During the British Raj, Wasseypur and Dhanbad were located in the Bengal region. After India gained its independence in 1947, they were carved out of Bengal and redistricted into the state of Bihar in 1956. In 2000, Wasseypur and Dhanbad were redistricted for a second time into the newly formed state of Jharkhand where they remain. The village has been historically dominated by the Qureshi Muslims, a sub-caste of animal butchers who are feared by the non-Qureshi Muslims living there and Dhanbad by extension.

During British colonial rule, the British had seized the farm lands of Dhanbad for coal which began the business of coal mining in Dhanbad. The region was a hotbed of the local faceless dacoit Sultana Qureshi who robbed British trains in the night and thus held some patriotic value for the locals.
Shahid Khan (Jaideep Ahlawat), a Pathan, takes advantage of the mysteriousness of the faceless dacoit Sultana, a Qureshi, by impersonating his identity to rob British ferry trains. The Qureshi clans eventually find out and order the banishment of Shahid Khan and his family from Wasseypur. They settle down in Dhanbad where Shahid begins work as a labourer in a coal mine. He is unable to be at his wife's side during childbirth, and she dies. The enraged Shahid kills the coal mine's muscleman who had denied him leave on that day. In 1947, independent India begins to assert its authority over itself. The British coal mines are sold to Indian industrialists and Ramadhir Singh (Tigmanshu Dhulia) receives a few coal mines in the Dhanbad region. He hires Shahid Khan as the new muscleman of one of the coal mines. Shahid terrorises the local population to seize their lands and extract compliance.