The 2D band diagram comprising out-of-plane potentials has been ubiquitously utilized for III-nitride heterostructures. Here, we propose the 3D band diagram based on unambiguous evidences in luminescence and carrier dynamics for lateral polarity junction quantum wells: although electrons and holes are separated out-of-plane in quantum wells by polarization, different band diagram heights lead to secondary carrier injection in-plane, causing electrons to transport from the III- to N-polar domains to recombine with holes therein with large wavefunction overlap. We also show that utilization of the 3D band diagram can be extended to single-polarity structures to analyze carrier transport and dynamics, providing new dimensions for accurate optical device design.