Sidney (Neve Campbell) and Randy (Jamie Kennedy) are attending Windsor College. They see news reports that a couple (Jada Pinkett Smith and Omar Epps) were murdered in a movie theatre at the preview of the Stab movie, which was based on a book by Gale Weathers (Courteney Cox) about the Woodsboro murders (in other words, the events of the movie Scream). Phil Stevens is stabbed in the head through the wall of a bathroom cubicle. The killer then enters the cinema and sits next to Maureen Evans, and she assumes the killer is simply her boyfriend wearing a mask. During the Casey Becker kill scene in the film Stab, the crowd goes wild. Taking advantage of this, the killer stabs Maureen multiple times. Since many of the movie-goers are wearing the killer's costume (as publicity material provided by the movie studio) and are all carrying fake knives, nobody takes Maureen's attack seriously. Seriously wounded and dying, she climbs up the stairs in front of the movie screen and lets out one final cry. As the crowd realizes she isn't faking, she falls down dead. Soon, Sidney and Randy realize that the nightmare is starting all over again.
Dewey (David Arquette) also arrives on the campus to try and help protect Sidney. Once again, in the "rules" scene, Randy and Dewey discuss the fact that anyone could be the killer (also known as Ghostface) — including themselves. During the course of the discussion, Randy continues his job of explaining the rules of a horror movie, this time the "rules of a sequel".
The killer attempts to stab Sidney, while setting up a copycat ploy. Casey "Cici" Cooper (Sarah Michelle Gellar), a sorority girl, is the next victim. While alone at her sorority house, Cici is threatened by the killer over the phone before the killer attacks her inside the house. Cici runs upstaires where she throws a plant pot and a bike at the killer. CiCi is chased to the top floor where the killer throws her through balcony doors where the killer then stabs her in the back twice before throwing her over a third story balcony to her death. After the police discover the body, the students at the nearby martini mixer go over to investigate, leaving Sidney and her boyfriend Derek (Jerry O'Connell) at the Delta Lambda Zeta house. The killer attacks Sidney, but Derek appears and helps Sidney escape, before he charges into the house himself. He is slashed on the arm, but the wound is not serious. In the confusion, the killer escapes.
At the police headquarters, Gale and Dewey notice that the names of the new victims loosely match the first three victims from Woodsboro — Maureen Evans matches Maureen Prescott, Casey "Cici" Cooper matches Casey Becker and Phil Stevens matches Steven Orth. The police chief assigns two detectives to protect Sidney from any further attempts on her life. Later, Sidney is in the school theater rehearsing for the play Cassandra when the killer attacks through the mass chaos in one of the scenes, although it is not clear if this is simply a figment of Sidney's imagination or not.
Randy is the next victim. The group is outside on the campus lawn amongst dozen of college students, enjoying the fine weather. The killer telephones and taunts them, claiming that he can see them from where he is. Gale and Dewey search the dozen or so students in the area with cell phones, trying to quickly reveal if any of them is the killer. Randy is also looking around whilst talking to the killer on the phone; he is trying to stall the killer in order to help Gale and Dewey find him. While he is outside the cameraman Joel's van, Randy is unexpectedly pulled into the van and stabbed to death, before his body is discovered soon afterwards by Joel, Gale and Dewey. Officer Andrews and Officer Richards, the detectives who were assigned to protect Sidney, are attacked while their vehicle is stopped at traffic lights. One of the detectives tries to shoot the killer while on the hood of the car, and the killer deliberately crashes the car, killing the detective and knocking the killer unconscious. Gale and Dewey become involved with the killer, resulting in Dewey being stabbed and seriously wounded. Sidney and Hallie (Elise Neal), Sidney's roommate, narrowly escape the wreckage of the crashed car by squeezing past the unconscious killer in the front seat. Once out of the car, Sidney debates whether to remove the killer's mask or not, and decides to, but returns she find that the killer is gone. She then turns around, only to see Hallie being stabbed by the killer.
Sidney runs to the school theatre, where she is confronted by the killer once more. The killer reveals himself to be Mickey (Timothy Olyphant), her new boyfriend's best friend. Sidney finds her boyfriend Derek tied to a stage prop, and Mickey then shoots Derek in the chest. Before Derek dies, he says to Sidney "I would have never hurt you, never." Mickey is also revealed to have had a partner, Sidney turns around to see Gale coming out of the stage door, Sidney then sees that Gale is the killer. Gale shakes her head "no" and then Debbie Salt comes out, holding the other cop's gun. Sidney then recognizes her as Mrs. Loomis, (Laurie Metcalf) (Debbie Salt is the name she had when she previously staged herself to be a journalist) the mother of Sidney's previous boyfriend Billy. Mickey reveals that it was his plan all along to be caught for the murders, and to become famous and immortalized by the media. He wanted to blame the violent killings on horror movies; the "effects of cinema violence in society." He met Mrs. Loomis on a "psycho website", and she agreed to fund his college tuition in return for his part in the killings. She also helped Mickey place calls to the victims, except for that day because she "ditched on him." Mrs. Loomis' motive for killing Sidney and her friends was revenge for Sidney having killed her son. However Sidney points out to her that if she had not abandoned Billy prior to this, then Billy and Stu Macher would not have started their killing spree (the events of the first movie). Mrs. Loomis shoots Mickey, removing him as a potential threat, and stating that his intended legal defense was absurd anyway and that no one would have believed it.
As Mickey is shot, he reflexively shoots Gale, causing her to fall off the stage. Sidney is cornered by Mrs. Loomis and tricks her momentarily into believing Mickey is still alive, and when Mrs. Loomis is distracted, Sidney hits her in the face with a prop jar. Sidney then barricades herself backstage and causes the front of the stage to collapse on Mrs. Loomis. Mrs. Loomis survives and gets Sidney in an armlock, however Cotton (Liev Schreiber) — the man Sidney initially blamed for killing her mother — arrives and takes Mickey's gun.
Mrs. Loomis tries to convince Cotton to let her kill Sidney, but Cotton chooses to shoot Mrs. Loomis instead. Sidney and Cotton discover that Gale is wounded but alive, and they help her. Mickey suddenly jumps up dramatically, and Gale and Sidney shoot him multiple times. Then, Sidney turns around and decides to shoot Mrs. Loomis in the head — "just in case". It is then revealed that despite his ordeal, Dewey survived his stabbing. He is wheeled out on a gurney and taken away in an ambulance. Gale decides to ride with the ambulance to the hospital. It turns out that Dewey's scar tissue from previously being stabbed in the back prevented this latest stabbing from being fatal. After they go to the hospital, the news team arrives and tries to get a story on Sidney. But despite Sidney's real hero, she tells them that Cotton is the man to interview. The news team goes to him, after Cotton tells them a "time and place" to do an interview, he makes a comment that "It would make one hell of a movie." Sidney is seen walking off at the campus, surviving the murders.
A signature device, started in Scream and continued in Scream 2 and Scream 3, was the typical "rules" for the slasher subgenre of horror movies, always recited by the movie-buff character Randy. In Scream, those rules are:
- You can never have sex.
- You can never drink or do drugs. (The "sin factor, an extension of number one".)
- Never, ever, EVER, under any circumstances say "I'll be right back", 'cause you won't be back.
A similar set of "rules" was used for the movie's trailer:
- Don't answer the phone
- Don't open the door
- Don't try to hide
- But most of all don't scream
A signature device, started in Scream and continued in Scream 2 and Scream 3, is the typical "rules" for that type of horror movie being stated by the characters. In Scream 2, the rules for a sequel (as described by Randy) are:
- The body count is always bigger.
- The death scenes are always much more elaborate, with more blood and gore.
- Randy starts to describe the third rule: "If you want your films to become a successful franchise, never, ever...' before being interrupted by Dewey. However, the film's original teaser trailer featured an extended version of the rules scene which reveals that originally the third rule was supposed to be "Never, ever, under any circumstances assume the killer is dead." This referenced Randy's last line in the first Scream which stated that a killer always comes back to life for one last scare.
The lack of a third rule in the film's final cut was a deliberate in-joke by the crew, referencing the fact that it is impossible to ensure that a horror franchise will be successful.
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