The Penitentiary was the main incarceration area for the various deranged inmates of Arkham Asylum. It included a Main Cell Block for some of the most crazed patients on the island, an Extreme Incarceration area, and a Visitor's Center. As Arkham West fell to the Joker's men during the villain's takeover, the Penitentiary was taken by storm as well.
The Joker made his headquarters in the Visitor's Center, had his men construct a clown face facade over the entrance, waited in one of the prisoner rooms, and playing a recording for Batman's arrival, while at least three Blackgate convicts entered the Penitentiary through the Cells Access, and shot several security personnel near the entrance.
Victor Zsasz also invaded the Penitentiary, and killed three security guards in the Penitentiary's upper guard room. Several convicts also dragged two orderlies and guards outside to kill them. After they knocked them down, the convicts remained on guard near the entrance of the Penitentiary, and destroyed an ambulance by pushing it down into the lower courtyard of Arkham West. Batman arrived on the scene, defeated the convicts, and freed the surviving orderly, who promised to take a wounded guard to the Medical Facility. Batman infiltrated the Cells Access, and disposing of the three convicts inside.
Meanwhile, Harley Quinn had infiltrated the Penitentiary with Warden Sharp as her hostage. She took Sharp to the Security Control Room and held him there. Batman followed the Warden's DNA trail through the Penitentiary, passed through the Main Cell Block, and through the Green Mile, where Poison Ivy begged to be freed. Batman proceeded to the Security Control Room, found and freed the Warden, who gave him the security codes for the Cryptographic Sequencer, a device that allowed the user to hack the Security Gate Control panels. Harley Quinn set Poison Ivy free, then went about freeing those on the Joker's "party list", which included the Penguin and the Mad Hatter. The Joker then loosed the more insane patients from their cells, and freed Two-Face and Calendar Man. Batman headed back to the Green Mile, and paused only briefly to knock the escaped mental patients about.The Arkham Lunatics stormed through the Penitentiary, which left both the Arkham Staff and the Joker's men at the mercy of their rampage. Harley Quinn made her way to the Main Cell Block and awaited Batman's arrival. As he reached the scene, she fled to a control platform atop the unlocked cells and activated the Patient Pacification System: an electrified floor. Quinn killed a security guard on the floor as a demonstration, but Batman avoided the floor by grappling up to the control platform, where an army of Blackgate Prisoners had overpowered the two lone guards and turned on him. Using security shock batons, the convicts fought Batman, but were eventually defeated. A dismayed Harley Quinn accused them of being "idiots" and reminded them that "There are guns everywhere!", which referred to the emergency riot gun lockers.
The convicts failed despite their attempts to use the guns, and Batman deactivated the Patient Pacification System before he followed the fleeing Harley. Harley reached the Guard Room, where she took two security guards hostage, including Louie Green. Harley strung them up over electrified pools of water as Batman arrived, hot on her heels. After Batman had shut down the power that electrified the water and freed both guards, Quinn revealed that she had a canister of Joker Toxin set to be released in the room. Batman hacked through the security gate and saved both of the Arkham security guards.
While Green and the other guard attempted to get the ventilation system working, Quinn fled to Extreme Incarceration, where Mr. Freeze had recently made his escape. Batman followed Quinn through Controlled Access, where she allowed him through the security gate. Batman entered Extreme Incarceration, where he found himself standing on a set of three electrified floors. Harley, from the control tower, set loose an army of Blackgate Prisoners on Batman while she electrified one section of the floor.
After he defeated all of the henchmen, Batman was attacked by Quinn, although he easily evaded her and put her in a Solitary Confinement Cell. Batman scanned Quinn's fingerprints, and hoped to follow the trail to the Joker's secret lab at the Botanical Gardens. Harley attempted to trap Batman inside a sealed cell, but he blew his way out by using his Explosive Gel. Batman then left the Penitentiary to go to the Botanical Gardens. On his way out, Batman knocked out a mental patient who had killed the guard and orderly that he'd rescued earlier. Batman then exited to outer Arkham West. The Penitentiary was the least damaged by Poison Ivy's plants when they overran the island, and the Joker continued to make his headquarters at the Visitor's Center. After Batman defeated Poison Ivy, the Joker was so proud of all that he'd accomplished, that he decided to have a "party" in Batman's honor.
The Joker's men set off fireworks to direct Batman back to Arkham West, where they cheerfully awaited him, urged him on, and even allowed him access. Entering the Visitor's Center, Batman listened to the Joker make a short speech to him before he blew up the Visitor's Center to reveal his secret headquarters. A disoriented Batman staggered through the Visitor's Center guard office and holding cells, and entered the Joker's Throne Room.
The Joker awaited Batman atop a throne of gag toys, and vented his frustration on the Ventriloquist's dummy, Scarface. Here, the Joker had massed all his remaining goons and two security guards that he'd injected with the steroid drug, Titan. Having lost their sanity to the chemical, the Titan-powered guards turned on Batman with the Joker's men, although Batman had managed to defeat them all. The Joker then revealed that he had Commissioner Gordon hostage. Trying to fire a Titan dart at Gordon, the Joker was delighted to see Batman take the shot himself. The Joker was willing to take a chance on Titan-because Batman had used up all the antidote on himself.
The Titan-powered Joker mutated and took Batman up to the Penitentiary Roof, where he left Batman to fight in an enclosed arena against an army of Blackgate Prisoners. The Joker also strapped Gordon to an electroshock therapy chair, which sent bolts of electricity into him at random intervals. Several news helicopters circled the upper roof, and filmed Batman's desperate battle. Eager to get into their film, the Joker stood on the upper roof, and posed for them. As Joker commented on the news helicopter, Batman pulled him off his perch with his Ultra Batclaw. Batman did this twice, although the Joker had loosed knife-wielding henchmen out to fight Batman and tossed explosive gag wind-up teeth into the arena to kill him in an explosion.
Batman finally yanked the Titan-powered Joker into the Penitentiary Roof for the third time, which causing it to collapse under Joker's weight and knock him into the generator that was used to electrify Gordon's restraint chair. The Joker was finished off as Batman detonated Explosive Gel on his fist while he punched him in the face, and won the fight despite extensive damage to the Penitentiary. An attack force by the GCPD stormed the Visitor's Center, captured the remaining henchmen, and watched over the Titan-powered guards as they returned to normal. The shambles of the Penitentiary were retaken by the Arkham security forces, and the Green Mile was still mainly intact, which allowed for Poison Ivy to be placed back in her usual cell.