1996: More arrests, accusations regarding Shakur's death and second child
In 1996, Lil' Kim became pregnant with Wallace's child while the two were having an affair, but she later decided to get an abortion. Wallace also started a relationship with Charli Baltimore, a Philadelphia native who portrayed Evans in the "Get Money" music video. Although Wallace shared his plans to include her in a supergroup called the Commission, she was aware that she was not the only woman in his life. On March 23, 1996, Wallace was arrested outside a Manhattan nightclub for chasing and threatening two fans who were asking for autographs, smashing the windows of their taxi, and punching one of them. He pleaded guilty to second-degree harassment and was sentenced to 100 hours of community service. Later that year, he was arrested at his home in Teaneck, New Jersey, on drug and weapons possession charges.
At the Soul Train Music Awards in 1996, "One More Chance (Remix)" was nominated for Song of the Year and received the R&B/Soul or Rap Song of the Year award in the same year. In June 1996, Shakur released "Hit 'Em Up". A diss track directed towards Wallace and other East Coast rappers, Shakur claimed to have had an affair with Evans, who was estranged from Wallace at the time, and accused Wallace of copying his style and image. Described as "manic", "Hit 'Em Up" disses Wallace, Combs, and their associates, including Junior M.A.F.I.A., Evans, and Bad Boy Records. In 1996, Wallace collaborated with rising rapper Jay-Z on his debut album, Reasonable Doubt, recording a duet titled "Brooklyn's Finest". The track used humor to address speculation surrounding Wallace and Shakur: "If Faith has twins, she'll probably have two Pacs. Get it? Tu ... Pac's." According to Wallace, humor had always been his way of coping with hardship since elementary school, explaining, "I gotta make jokes about it [...] I can't be the [guy] running around all serious".
On September 7, 1996, Shakur was shot four times in a drive-by shooting in Las Vegas and died six days later. Because of Shakur's accusations in his records, Wallace, along with other New York rappers like Mobb Deep, Capone, and Noreaga, became suspects in his murder. In a 2002 Los Angeles Times series titled "Who Killed Tupac Shakur?", journalist Chuck Philips reported, based on police reports and multiple sources, that the shooting was carried out by the Southside Crips, a Compton gang, seeking revenge for a beating Shakur had allegedly inflicted earlier that day. The report also claimed that Wallace had paid for the gun used in the shooting. The night Shakur died, Wallace called Evans in tears; Evans recalled that "he was in shock [...] and it's fair to say he was probably afraid". Wallace expressed regret over Shakur's death but declined to attend his funeral when asked by a friend. He explained his decision by saying, "[Shakur] made my life miserable [...] he told lies, fucked with my marriage, [and] turned [my] fans against me". The Los Angeles Times editor Mark Duvoisin stated that "Philips' story has withstood all challenges to its accuracy, [...] [and] remains the definitive account of the Shakur slaying". Wallace's family denied the report, providing documents that claimed he was in New Jersey at the time of the incident. The New York Times called the documents inconclusive, stating:
The pages purport to be three computer printouts from Daddy's House, indicating that Wallace was in the studio recording a song called "Nasty Boy" on the night Shakur was shot. They indicate that Wallace "wrote half the session", was "in and out/sat around" and "laid down a ref", shorthand for a reference vocal, the equivalent of a first take. But nothing indicates when the documents were created. And Louis Alfred, the recording engineer listed on the sheets, said in an interview that he remembered recording the song with Wallace in a late-night session, not during the day. He could not recall the date of the session but said it was likely not the night Shakur was shot. "We would have heard about it", Mr. Alfred said.
Wayne Barrow, Wallace's co-manager at the time, stated that Wallace was recording the track "Nasty Girl" on the night Shakur was shot. Shortly after Shakur's death, Wallace met with Snoop Dogg, who claimed he never hated Shakur. During the recording of his second album, Life After Death, Wallace and Lil' Cease were arrested for public marijuana use, resulting in the repossession of their car. Wallace opted to rent a Chevrolet Lumina rental SUV, despite Lil' Cease's concerns about its faulty brakes. The car was ultimately crashed into a rail, breaking Wallace's left leg and fracturing Lil' Cease's jaw. Wallace spent months in the hospital, initially using a wheelchair, later relying on a cane (which he used until his death), and undergoing therapy. Despite his hospitalization, he continued working on the album, referencing the accident in "Long Kiss Goodnight" with the line, "Ya still tickle me, I used to be as strong as Ripple be / Til Lil' Cease crippled me".
On October 29, 1996, Evans gave birth to Wallace's son, Christopher "C.J." Wallace Jr. Around this time, Wallace began recording the songs for Life After Death. The following month, Junior M.A.F.I.A. member Lil' Kim released her debut album Hard Core. Lil' Kim described herself as Wallace's "biggest fan" and referred to herself as "his pride and joy". In a 2012 interview, Lil' Kim revealed that Wallace stopped her from recording a remix of Jodeci's single "Love U 4 Life" by locking her in a room. According to Kim, Wallace told her she was "not gonna go do no song with them", likely due to Jodeci's association with Shakur and Death Row Records. While working on Life After Death, Wallace began to lose weight, losing around 30 pounds (14 kg), according to his mother.