The performance of modern-day proton exchange membrane (PEM) fuel cells at high current density are largely dictated by the effective management of liquid water. In the first part of this paper, a rigorous model was presented to model PEM fuel cells using a computational fluid dynamic (CFD) technique. It was found that under the assumption of no liquid water formation, the model consistently overpredicted measured polarization behavior. In this part of the paper, we present a model to treat formation and transport of liquid water in PEM fuel cells. In this model, the phase change process is modeled as an equilibrium process, while the transport of liquid water is governed by pressure, surface tension, gravity and electro-osmotic drag. Results show that the inclusion of liquid water transport greatly enhances the predictive capability of the model and is necessary to match experimental data at high current density.