Based on the composite particle representation presented in the last paper (I), a method of solving the many-body problem known as the composite particle approximation is proposed. It is shown that a many-body system can be simplified to a composite particle system (plus one or more uncorrelated basic particles if any existed) if the following conditions are satisfied: 1) the binding energies of the composite particles are much larger than the excitation energies of the system; 2) there is domination of the collective mode for the composite particles. The interactions between the composite particles, as well as the interactions between composite particles and the basic particles can be evaluated from the original particle-particle interactions. Applications of this theory are indicated.