Reapplying to PhD program after Master's Two years ago, I applied to PhD programs (in Physics, if it matters); my undergrad was characterized mostly by underachievement, so my application was pretty weak (poor GPA, generic LORs, no research experience, etc.) Understandably, I did not get the response I was hoping for, and I decided to go for my Master's, both to put myself in a better position and to make sure academia is really what I wanted.

Fast forward two years and I'm in a bit of an awkward spot; I've done well in my Master's and I want to apply to PhD programs, but I'm not sure how to characterize my less-than-traditional path (it is relatively uncommon, at least stateside, to attend a terminal master's program in Physics). All aspects of my application are much better on paper (research, GPA, recommendations; except my GRE scores, which were already quite strong), but I'm worried about coming off as a second-rate student who couldn't make it the first time. Even my advisor, who thinks my application is otherwise quite strong, said he's unsure how it will be received.

Many of the schools I'm applying to are ones I applied to previously. Should I emphasize the upward trend through my Master's and how I've improved since my previous applications? Or is it not even worth mentioning (I could always use the extra space to talk about research) or possibly harmful?
Your masters program experience will likely give you a boost if it will make your letters less generic and you can demonstrate research experience. It's possible some programs will not think you worthy, I don't know how self-absorbed those programs are in physics, but in biology a commitment and talent for research are prized above classroom performance.

I wouldn't stress so much your former poor application and instead focus on your recent successes, and use your personal statement/whatever equivalent is available to make clear your goals, and you could also use that space to reference your goals for your masters. Paraphrased, "In my masters program I set out to accomplish _______. Now I would like to continue/add to/expand towards ________."