Carmine Falcone all but controlled Gotham City, flooding it with drugs and crime. He is above the law, with most of Gotham's politicians and police on his payroll (examples being two councilmen, a union official, Judge Faden, Detective Flass and an unnamed policeman). It was mentioned that he shared a prison cell with Joe Chill, who was responsible for the murder of Bruce Wayne's parents. He hired a female assassin (disguised as a reporter) to kill Chill for threatening to testify against him, depriving Wayne of the chance to take his own revenge. Bruce confronts him at an underground establishment and tells Falcone that not everyone in the city is scared of him. Falcone dismisses the young billionaire as a harmless nuisance and has his thugs to beat him up in order to teach him a lesson. He tells Wayne that every important government official in Gotham is on his payroll, and that true power comes from being feared.
Years later, Falcone goes into business with Dr. Jonathan Crane and Ra's al Ghul, smuggling a fear toxin into Gotham inside toy rabbits. As a form of payment, Crane, who runs Arkham Asylum, diagnoses Falcone's henchmen as insane when they are captured so they can avoid prison. Wayne, who by now has become the vigilante known as Batman, discovers and foils the plan and knocks Falcone out, leaving him tied to a searchlight for the police to find. The trussed-up mobster; surroundered by a tattered overcoat, projects a bat-like shape into the sky; this impromptu calling card would later evolve into the infamous Bat-Signal. Batman also gave evidence to Rachel Dawes and blackmailed the judge into given an unbaised verdict, ensuring Falcone would finally be brought to justice.
While imprisoned, a humiliated Falcone tries to blackmail Crane into allowing him a part in the upcoming fear toxin. Crane instead wears his terrifying Scarecrow masks and uses his toxins on Falcone, literally terrifying the crime lord out of his mind and leaving him of psychonosis. Carmine is incarcerated in Arkham, continuously muttering the phrase "Scarecrow".
In the film's sequel The Dark Knight, it's revealed Falcone remains institutionalized a year later, and that Sal Maroni has taken over his crime family. It remains unknown if Falcone was ever released, if he recovered from his psychonosis or if he spend the rest of his life incarcerated for all his crimes.