The film opens with Rafiki (Robert Guillaume) gathering the animals of the Pride Lands together for the presentation of Simba (Matthew Broderick) and Nala’s (Moira Kelly) new daughter Kiara. Mufasa's spirit (James Earl Jones) watches over the ceremony. Later, Simba becomes very over-protective of an older Kiara (Michelle Horn), and to her dismay, he assigns Timon and Pumbaa (Nathan Lane and Ernie Sabella) to be her babysitters. One day while they are arguing, Kiara sneaks into the "Outlands" where she meets Scar's heir, a young cub named Kovu (Ryan O'Donohue). After escaping a river filled with crocodiles, the two become friendly, but Simba and, Kovu's mother, Zira (Suzanne Pleshette), find them and quickly end their playing. During a tense face-off, Zira reminds Simba that he exiled the Outsiders, and notes that if he wants to punish them, Kovu is Scar's hand-chosen successor. Unwilling to harm the cub, Simba orders them to leave and later scolds Kiara for endangering herself. In the Outlands, Zira's elder son, Nuka (Andy Dick), complains to his younger sister Vitani (Lacey Chabert) about Kovu's status as "the Chosen One" — the cub chosen by Scar to lead the pride after he was gone. At that moment, Zira returns and scolds both of her sons, but then decides that she can use Kovu's new friendship with Kiara to get her revenge against Simba.

Now a young adult, Kiara (Neve Campbell) heads out from home to do her first solo hunt; however, Nuka and Vitani set fire to the plains where Kiara is hunting, causing her to faint and giving Kovu (Jason Marsden) the chance to rescue her. Drawn by the smoke, Simba finds them together and reluctantly accepts Kovu's request to come to Pride Rock, though he forces Kovu to sleep outside. Later, Simba goes outside to a watering hole where Kovu contemplates attacking him, but Kiara interrupts and they go off together so Kovu can help her learn to hunt. During the lesson, they run into Timon and Pumbaa struggling with some birds, so the two lions help them chase the birds off. Together, they have fun playing, something Kovu notes he has never experienced before. That night, Kovu tells Kiara that he is not Scar's real son, but "was a part of him". Meanwhile, Simba seeks guidance from the "Great Kings" and Nala advises him to give Kovu a chance because he is not Scar. Kovu decides to leave after trying to confess his real intentions, but Rafiki stops and invites the young lions to experience "Upendi" — love. After a musical journey through the jungle, the two fall in love.

In the morning, Kovu, feeling guilty for being in Zira's plot, decides to take responsibility by explaining the truth to Simba and Kiara, despite knowing that it will outrage them. Before he can tell the truth, Simba invites Kovu for a walk and tells him the true story of Scar, which Kovu had never heard. However, their walk is interrupted by an ambush by Zira and her pride. After a brief fight, Simba manages to escape by scaling a wall of logs in a gorge but is wounded. In chasing after him, Nuka slips and is killed by falling logs. Zira blames Kovu for Nuka's death, slashing him across his face and giving him a scar identical to Scar's. Fleeing from his mother, Kovu returns to the Pride Lands and begs forgiveness from Simba. Still believing Kovu knew about the ambush, Simba exiles him and the Pride Land animals begin to drive him out. Kiara tries to reach Kovu but the lionesses hold her back. She pleads with her father to reconsider, but he refuses, saying that Kovu only used her to get to him and that he knows that Kovu is following in Scar's pawprints. Angered, Kiara tells him that he will never be Mufasa, horrifying her father, she then goes to Pride Rock crying. She later sneaks away from Pride Rock and eventually finds Kovu and convinces him to come back. Meanwhile, at Pride Rock, Simba discovers that Kiara is gone just when Zazu warns him that the Outsiders are coming. Knowing that it meant war, Simba sends him to find Kiara while he prepares the pride for battle.

Meanwhile, Zira leads the Outsiders towards the Pride Lands, and a fierce fight breaks out. As Zira and Simba face off, Kovu and Kiara leap between them and Kiara tells Simba the fighting has to stop. Kiara reminds her father that, by his own words, "we are one". Zira ignores her, but the rest of the outsiders falter after Vitani takes Kiara's side. Surprised and outraged, Zira threatens to kill her, which only causes the rest of the Outlanders to desert her. Now alone, Zira attempts to attack Simba but Kiara jumps in the way, sending them both over a cliff. Kiara lands on a rock, but Zira is dangling off a rock face and is sliding towards a storm-swollen river. She refuses Kiara's offer of help, and slips and falls to her death. Simba allows the Outlanders, including Kovu, to return to the Pride Lands, and Kovu is allowed to stand with Kiara at the top of Pride Rock. Simba looks up into the sky and smiles as he hears the spirit of Mufasa say, "Well done, my son. We are one."