By 1917, the US enters the Great War, and Tom and Matt are working as truck drivers. They seek other opportunities and join up with wheeler-dealer saloon owner Patrick J. "Paddy" Ryan (Robert Emmett O'Connor), whose voice of wisdom appeals to them:

I'm older than you and I've learned that nobody can do much without somebody else. Remember this boys, you gotta have friends...I'm glad you've come to me. As far as Paddy Ryan's concerned, there are only two kinds of people - right and wrong. Now I think you're right. You'll find that I am, unless you cross me.

The fact of elder son Mike's noble enlistment in the war in Europe as a Marine upsets Ma Powers (Beryl Mercer), and she begs younger son Tommy not to abandon her: "Tommy, promise me you won't go. You're just a baby!" Since his father has died, the task of raising Tom has fallen to his pathetic, clinging mother and to his respectable brother. In the upstairs bedroom, Tom speaks to his favored brother as he packs to leave home, and receives a lecture:

Tom: I suppose you think I oughta go too.
Mike: No, maybe it was selfish of me, Tom, but somebody's gotta stay here and take care of Ma. You earn more money than I do, and they'd have called me first anyway.
Tom: You always did get all the breaks.
Mike: Don't take it like that, Tom. You've got to be the man of the family now. And while we're on the subject, I wish you'd try to stay home a little more.
Tom: I got to work, ain't I?
Mike: Oh sure. Listen, Tom. I was in a place today and I heard somebody say something.
Tom: And what of it?
Mike: Well, they were saying, it seems as though they were pointing a finger at you and Matt.
Tom: Who was? (rising angrily) What right do you have to say anything about me?
Mike: Now, take it easy.
Tom: You're always hearin' things. You'll get too much in your nose someday and you'll wonder how you got it.
Mike: Oh, for crying out loud. I heard a couple of guys talking about ya, as much as to say you were in on some crooked work. What am I supposed to do? Run?
Tom: Well, you ain't askin' me, you're tellin' me. And I don't know a thing, see?
Mike: All I've got to say, Tom, is that you've got a good job now. You don't need these rats you're runnin' around with.
Tom: I suppose you want me to go to night school and read poems. I've been hearin' a few things myself.
Mike: (grabbing his shoulder) There's nothin' to hear about me!
Tom: Aw, that's all you know. You ain't so smart! Books and all that stuff don't hide everything.
Mike: You're a liar, Tom, you're coverin' up.
Tom: 'Coverin' up?' For what? For you? Why you're nothin' but a sneak-thief.
Mike: What did you say?
Tom: You heard me, a petty larceny sneak-thief. A nickel snatcher. Robbin' the streetcar company. (Mike slugs his brother, sending him crashing into a table and onto the floor. After slowing getting up, Tom kicks the door but doesn't directly retaliate against Mike)

Following the war in 1920, on the eve of Prohibition, the storeowner of the Family Liquor Store has painted a sign on his window: "Owing to Prohibition, Our Entire Stock Must Be Sold Before Midnight." The liquor store shelves are emptied as staggering party-goers on foot stock up with brown paper-wrapped packages. Some of the purchases fall to the ground and smash on the sidewalk. People load up a limousine and a flower delivery van with bottles. Even a baby carriage is filled with booze, displacing the infant of a young couple.

In the next remarkable scene, the potato chip scene at Paddy's bar counter, Paddy informally tells Tom and Matt that the coming of Prohibition will bring other financial benefits - multi-million dollar profits for illegal bootleggers. As Tom and Matt quietly lean against the counter, drinking coffee and eating food, Paddy (in a zooming closeup) quickly and greedily shoves handfuls of potato chips into his mouth, with the excess crumbling out, as he lures them into the lucrative liquor business. Paddy wants them to keep on the look-out for federal stashes of impounded liquor that can be stolen:

Don't you think that booze ain't gonna be valuable. I heard today that alcohol's going to thirty dollars a gallon. The Real McCoy is hard to get. All you gotta do when you deliver a good shipment is size-up the layout and let me know. I can use some of it. I know two or three others that'll buy all that I can't handle. It means real dough. A three-way split. I said we'd get together sometime, didn't I? Well, the time has come. Now!

In their next gasoline "delivery" job to a U.S. Bonded Warehouse, Tom and Matt actually drain beer from impounded beer barrels into their gasoline tank, and soon share a generous cut of the profitable proceeds. Paddy encouragingly prods them: "I'll make big shots out of you yet." After the two enterprising young men acquire new-found wealth, they outfit themselves with smart-looking, tailor-made clothes - amorally enjoying life's pleasures. With fast money comes a flashy roadster car and the fast life, and they celebrate at an extravagant swanky nightclub. As they enter, a brass orchestra plays Toot Toot Tootsie, and they soon find themselves dancing with attractive fast women: Matt with blonde floozy Mamie (Joan Blondell) and Tom with Kitty (Mae Clarke).

The two acquire a new crime boss named Samuel "Nails" Nathan (Leslie Fenton), who has plans to manufacture illegal booze (through the Lehman Brewing Company) and distribute it. Tom and Matt, as feared criminals, are "the official signers and sealers," forcing and terrifying speakeasy owners into buying their illegal booze (rather than from rival competitor Schemer Burns), as Nathan explains to them:

It means they buy our beer, or they don't buy any beer.

When Tom's brother Mike returns home as a wounded veteran of World War I, Mike learns from Officer Pat Burke (Robert E. Homans) that Tom has moved out of the house and is "runnin' around with a couple of gals at the Washington Arms Hotel. Well, the worst part of it is that he's been lyin' to his mother. He's leavin' her think that he's made an honest success. Why, sure it's only a question of time when he's gonna be caught...Beer, bootlegging, he's one of Paddy Ryan's gang...A wicked business." Tom's mother is naively unaware of her son's criminal activities.

For the welcome home dinner, Tom and Matt thoughtlessly contribute a huge keg of beer for the occasion and place it in a central, conspicuous place on the dinner table where it blocks the characters' views of each other. Mike, who appears emotionally impaired by his war wounds, refuses to share in the beer drinking (even Ma has a beer). In an outburst, Mike criticizes his brother's illicit activities during the "swell celebration":

Tom: So, beer ain't good enough for ya, huh?
Mike: (rising violently) You think I'd care if there was just beer in that keg? I know what's in it. I know what you've been doin' all this time. You got those clothes and those new cars. You've been tellin' Ma you're goin' into politics, that you're on the city payroll. Pat Burke told me everything. You murderers! There's not only beer in that keg. There's beer and blood. Blood of men. (Mike heaves the keg into a corner where it smashes a table)
Tom: You ain't changed a bit. Besides, your hands ain't so clean. You killed and liked it. You didn't get them medals by holding hands with them Germans.

As Tom departs, he tells his good-hearted mother to send his clothes (after laundering) to the Washington Arms Hotel, where he has moved into an apartment with Matt and his girlfriend.

In one of the most vividly remembered and vicious scenes in film history, the breakfast scene in Tom's apartment the next morning, he walks sleepily to the breakfast table in his striped pajamas. He is in a foul mood, bored, grouchy and irritable after a demanding phone conversation with Nails Nathan. (Matt and Mamie can be heard dallying in bed in the adjoining room.) In contrast, Tom has grown tired of his relationship with moll girlfriend Kitty. At the table, she greets him without a smile. He asks her for a beer for breakfast and she talks back:

Tom: Ain't you got a drink in the house?
Kitty: Well, not before breakfast, dear.
Tom: I didn't ask you for any lip. I asked you if you had a drink.
Kitty: I know, Tom, but I-I wish that...
Tom: There you go with that wishin' stuff again. I wish you was a wishing well, so that I could tie a bucket to ya and sink ya.
Kitty: (provokingly) Maybe you've found someone you like better.

He looks down, makes a nasty grimace, and then impulsively picks up a grapefruit half from his plate and contemptuously pushes it into her face to end their relationship. She looks down, physically and painfully hurt and emotionally embarrassed by his crudeness. It is one of the single-most cruel acts ever depicted in a film. His life of crime has made him cruel and hardened.