A few months after the events of the first film, alcoholic werewolf cop Lou Garou, aka "WolfCop", continues to fight crime in the small town of Woodhaven. Garou's partner, Tina Walsh, has become the new police chief—however, Garou's tendencies to violently dispatch criminals in his wolf form has left her frustrated, especially since she is trying to keep Garou's WolfCop identity a secret from the rest of the town. Meanwhile, Sydney Swallows, an immensely wealthy businessman and author of self-help books, has helped reinvigorate Woodhaven's economy by re-opening the old brewery under the new name "Darkstar", under which he creates a trendy, newly-developed "Chicken Milk" flavoured beer.
After slaughtering a gang of criminals attempting to transport a large crate to an unknown location, Garou learns that there may be more reptilian "shifters" in town when he notices that the tag on the crate features the shifter's symbol. The next morning, Garou opens the crate, and is shocked to find that it has Willie Higgins, his supposedly deceased friend, inside. Willie explains that he has been alive the whole time, and had actually been abducted by shapeshifters, one of whom assumed his identity.
At night, Garou transforms into WolfCop, and a strange, talking parasite resembling Willie emerges from Willie's stomach. Elsewhere, a group of scientists working for Swallows have secretly been constructing a cyborg named Frank, which later murders several people at a strip club. New recruit officers Daisy and Scott head over to investigate, and Scott is killed by Frank. Daisy calls for backup, and Garou and Tina arrive at the strip club. They manage to destroy Frank, but Garou is seriously wounded in the process.
Willie drives Garou to the neighbouring town of Regina and meets with his sister Kat, an occult specialist whom heals Garou's wounds using a moon rock. Later that night, Garou and Kat head into the latter's bedroom, and Kat reveals herself to be a werecat before the two have sex. Meanwhile, Willie watches a television commercial featuring Swallows. When the parasite sees Swallows in the commercial, however, it bursts out of Willie's body and turns into a small, hostile shifter, whom Kat shoots and kills after it attacks Garou.
Back in Woodhaven, Tina realises that Swallows might be hiding menacing secrets when she notices that the logo of his business contains the shifter's symbol. She heads to the brewery with Daisy to investigate, where they eavesdrop on a meeting occurring between Swallows and his assistants, in which Swallows mentions a "final solution". Later, Tina and Daisy overhear when Sydney has the town mayor Bubba Rich drink a can of Chicken Milk, before using a glowing metal instrument that emits high sound frequencies to make another mini-shifter burst out of Rich's chest and kill him. Tina and Daisy try to escape, but Daisy is caught and abducted, and Garou is forced to leave her behind.
After getting a call from Tina, Garou and Willie return to Woodhaven, which is preparing to host a major hockey game at a newly-constructed arena. Using Kat's moon rock, Garou is able to transform into WolfCop despite the lack of a full moon. WolfCop, Willie and Tina infiltrate the arena by disguising themselves as a goalie, referee and security guard respectfully. During the opening ceremony, Swallows introduces the "Darkstars", the town's new hockey team, and gets the crowd to drink Chicken Milk as a "toast" before having one of his assistants (acting as the organist) activate the glowing instrument. The mini-shifters kill several spectators before Willie kills the organist and bangs on the microphone. The resulting mic feedback causes the mini-shifters to stop their attack. As the remaining audience members flee the building, Swallows reveals he is holding Daisy hostage and orders the Darkstars to attack Garou. Garou is able to kill each of the Darkstars and Swallows's other henchman with the assistance of the werecat Kat. Simultaneously, Tina manages to get Daisy away from Swallows. However, Swallows reveals he has rigged the place with explosions and escapes before the officers can shoot him. The remaining survivors manage to escape the building right before it blows up, and decide to head to the bar the next morning as the movie ends on a cliffhanger.
