The film centers around Simba and Nala's daughter, Kiara, who falls in love with Kovu, a male lion who was raised in a pride of Scar's followers and Simba's enemies, the Outsiders. Desperate to be together, they must overcome the two obstacles that are keeping them apart: Kovu's mother, Zira, and Simba's prejudices against the Outsiders. While the original film's plot has been inspired by the Shakespearean play Hamlet, this sequel's plot is similar to another Shakespearean play, Romeo and Juliet.
Discussion began about the possibility of a sequel to The Lion King before the first film even hit theaters. Most of the original cast reprised their roles from the first film, with the notable exceptions of Rowan Atkinson, who was replaced by Edward Hibbert as the voice of Zazu in this film and its follow-up/predecessor The Lion King 1½ and Jeremy Irons, who was replaced by Scar's singing voice actor from the first film Jim Cummings as the voice of Scar in this film. Also, Madge Sinclair, who was the voice of Simba's mother Sarabi, died before this film was released, therefore her character was written out.
The film opens where the previous film ended where Rafiki (Robert Guillaume) gathers the animals of the Pride Lands together for the presentation of King Simba (Matthew Broderick) and Queen Nala’s (Moira Kelly) new daughter Kiara. Mufasa's spirit (James Earl Jones) watches over the ceremony.
Months later, Simba becomes very over-protective of young Kiara (Michelle Horn), assigning Timon and Pumbaa (Nathan Lane and Ernie Sabella) to be her babysitters. One day while they are arguing over their lunchtime, Kiara sneaks into the "Outlands" where she meets 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), quickly end their playtime. Zira reminds Simba that he banished 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 and wants her to be careful when she is the future queen. In the Outlands, Zira's eldest son, Nuka (Andy Dick), complains to his younger sister Vitani (Lacey Chabert) about Kovu's status as "the Chosen One". 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, Simba is worried and fearful of his daughter unprotected and sends Timon and Pumbaa to watch her again, after promising not to. Furious to find out her father has lied, Kiara goes further from home to hunt away from the Pride Lands, though is still unsuccessful in her efforts. Nuka and Vitani (Jennifer Lien) 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 thanks Kovu for rescue his daughter and allows him to come to Pride Rock, though he is ordered to sleep outside the den. That same night, Simba has a nightmare about his father's death, only in the dream, Scar morphs into Kovu and throws the panicked and frightened Simba off the cliff. In the morning, he walks outside the den and yawns and stretches and goes to drink on 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". Simba, who is hesitant to trust the young Outlander around his daughter, seeks guidance from the "Great Kings" and Nala advises him to give Kovu a chance, because he is not his father. Kovu decides to leave after trying to confess his real intentions, but Rafiki stops and invites the young lions to experience "Upendi"– which means love. After a musical journey through the jungle, the two deeply fall romantically in love. Then Simba finally warms up to Kovu and invites him to the den and sleep.
In the morning, 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, and Simba realizes that Kovu had set him up and Kovu claims he had nothing to do with it. After a brief fight, Simba manages to escape by scaling a wall of logs in a gorge. In chasing after him, Nuka slips and is killed by falling logs. Zira blames Kovu for Nuka's death, swiping a paw across his face, leaving a scar across his eye that resembles Scar's. Breaking from his mother, Kovu returns to the Pride Lands and begs the king for his forgiveness. Believing Kovu was behind the ambush, the wounded and shortsighted Simba exiles him and strictly orders Kiara to be confined in Pride Rock. Kiara is furious because her father refuses to listen to Kovu, and Simba claims he's doing what his father would have wanted, and she angrily defies him, saying "YOU WILL NEVER BE MUFASA!" horrifying and hurting him. Later that night, Kiara escapes and reunites with Kovu far from home.
Meanwhile, Zira leads her pride in a war against the Pride Lands, and a fierce fight breaks out. As Zira and Simba face off, Kovu and Kiara leap between them and Kiara tells her father that the fighting has to stop. She then tells him that the Outsiders are part of the pride, and she and her father peacefully nuzzled and reconciled. Zira ignores her, but Vitani agrees with Kiara. Zira tells her daughter that she will die too if she will not fight, which turns the other Outlanders against her and they go to Simba's side. Now alone, Zira leaps for Simba, but Kiara pushes her away and they fall over a cliff. Kiara lands on a rock, but Zira is sliding towards a storm-swollen river. Kiara offers to help, but Zira, like Scar, is unable to let go of her hate and falls to her death. Simba helps his daughter back up the cliff and allows the Outsiders, including Kovu, to return to the Pride Lands, and Kovu marries Kiara before joining her and her parents at the top of Pride Rock. Mufasa's spirit proudly watches over from among the stars and praises his son for his decision.