One year following the chilling events of Poltergeist, the neighborhood of Cuesta Verde is undergoing a significant transformation. The site where the Freelings' home once stood is now being evacuated and converted into an archaeological paranormal dig. During this excavation, a ground crew unexpectedly uncovers an underground cave, a discovery that catches the attention of the psychic Tangina Barrons. She reaches out to her friend Taylor, an American Indian shaman, to investigate further. It becomes clear to Taylor that the malevolent entity, Kane—a demon masquerading as a preacher—has targeted Carol Anne and that urgent action is needed to protect her.
Meanwhile, the Freeling family, consisting of Steven, Diane, Robbie, and Carol Anne, has relocated to Phoenix, Arizona. They now reside with Diane's mother, Jessica "Grandma Jess" Wilson. Unfortunately, Steven has fallen on hard times after losing his real estate license, forcing him to sell vacuum cleaners door-to-door while dealing with the stress of insurance claims for their lost home. Grandma Jess possesses remarkable clairvoyant abilities and reassures Diane and Carol Anne of their own similar gifts. In a poignant farewell, she passes away, leaving behind a comforting promise to always "be there" as needed.
As Taylor arrives, a malignant force begins to assault their home. With the family having removed all televisions from their residence, Kane's minions are left to exploit an alternate entrance through Carol Anne's toy phone. This initial assault is thwarted, prompting the family's hurried escape. Taylor introduces himself and persuades them that fleeing is futile, reinforcing their return to a temporarily secure home.
In a startling encounter, Kane appears at the door demanding entry, but Steven stands firm against him. Impressed by Steven’s resolve, Taylor guides him to the desert and grants him the Power of Smoke, a spiritual force capable of repelling Kane. Later, Tangina visits the family to unpack Kane's dark history as the Reverend Henry Kane, detailing how he lured his followers into the cave, ultimately sealing their fate. With his malevolence forming, Kane transforms into a monstrous Beast, cunning and relentless in his pursuit to destabilize the family.
Tragedy strikes one night when Steven drunkenly succumbs to possession by a worm infiltrated by Kane. In a harrowing moment, he attacks Diane, whose desperate declaration of love momentarily breaks the hold over him. The situation escalates when the creature manifests into a gigantic, tentacled horror. However, Steven manages to use the Power of Smoke to cast it away. The time has come for the Freelings to confront Kane deep within his own territory—the Other Side.
Returning to Cuesta Verde and descending into the cavern that held their haunted past, they face Kane head-on. In a dramatic struggle, Kane seizes Carol Anne, inadvertently bringing the family together in a bid to fight back. With a charmed Indian lance in hand, Steven delivers a fatal blow to Kane, banishing him to the afterlife. As the family nearly crosses into that realm themselves, the spirit of Grandma Jess intervenes, guiding Carol Anne back to her family. Finally, the Freelings emerge safely from their trials, expressing their gratitude to both Taylor and Tangina for their unwavering support.
