Image coaddition is one of the most basic operations that astronomers perform. In Paper. I, we presented the optimal ways to coadd. images in order to detect faint sources and to perform flux measurements under the assumption that the noise is approximately Gaussian. Here, we build on these results and derive from first principles a coaddition technique that is optimal for any hypothesis testing and measurement (e.g., source detection, flux or shape measurements, and star/ galaxy separation), in the background-noise-dominated case. This method has several important properties. The pixels of the resulting coadded image are uncorrelated. This image preserves all the information (from the original individual images) on all spatial frequencies. Any hypothesis testing or measurement that can be done on all the individual images simultaneously, can be done on the coadded image without any loss of information. The PSF of this image is typically as narrow, or narrower than the PSF of the best image in the ensemble. Moreover, this image is practically indistinguishable from a regular single image, meaning that any code that measures any property on a regular astronomical image can be applied to it unchanged. In particular, the optimal source detection statistic derived in Paper. I is reproduced by matched filtering this image with its own PSF. This coaddition process, which we call proper coaddition, can be understood as the maximum signal-to-noise ratio measurement of the Fourier transform of the image, weighted in such a way that the noise in the entire Fourier domain is of equal variance. This method has important implications for multi-epoch seeinglimited deep surveys, weak lensing galaxy shape measurements, and diffraction-limited imaging via speckle observations. The last topic will be covered in depth in future papers. We provide an implementation of this algorithm in MATLAB.