Some time after the events of the initial film, Buster Moon (Matthew McConaughey) is experiencing success with his new theater. However, his excitement is short-lived when talent scout Suki (Chelsea Peretti) delivers the harsh news that he wouldn't make it in the bustling Redshore City. Encouraged by Nana Noodleman (Jennifer Saunders), Buster decides to regroup the talented singers from the first movie and embarks on a trip to the city.
Together, they manage to sneak in for an audition with the entertainment mogul Jimmy Crystal (Bobby Cannavale). Unfortunately, Jimmy is unimpressed with Buster's original show concept. In a moment of inspiration, Gunter (Nick Kroll) proposes a unique space-themed production featuring Clay Calloway (Bono), a rock star who has mysteriously vanished from the public eye for the past 15 years. Intrigued by this pitch, Crystal approves it on the condition that they have the show prepared within three weeks.
As the production unfolds, Rosita (Reese Witherspoon) begins to grapple with a debilitating fear of heights, leading her to lose her primary role to Crystal's daughter, Porsha (Halsey). This relegates Rosita to a less significant part. Meanwhile, Johnny (Taron Egerton) struggles to get along with the top choreographer, Klaus Kickenklober (Adam Buxton), who seems to have no faith in his dancing abilities. Seeking improvement, Johnny connects with a street dancer named Nooshy (Letitia Wright), who becomes his mentor.
In a romantic twist, Meena (Tori Kelly) finds herself in a disheartening romantic scene alongside Darius (Eric André), a self-absorbed actor. As the story unfolds, Meena discovers her true feelings for an ice cream vendor named Alfonso.
Determined to bring Clay Calloway on board, Ash (Scarlett Johansson) and Buster personally visit him. Although initially resistant, Clay ultimately agrees to join the project after Ash's persuasive arguments. Meanwhile, Buster attempts to convince Porsha to swap roles with Rosita, who is struggling in her performance. Porsha misinterprets this as a dismissal and feels fired. This misunderstanding leads to a confrontation with Crystal, who, infuriated with Porsha, nearly throws Buster off his building before confining him to a closet.
With Suki's help, Buster escapes and learns that he needs to get out of Redshore City before Crystal can exact revenge. Returning to the theater, Ash brings the rest of the crew, along with Clay, who encourages Buster to stand strong and face the situation instead of running away as he did after losing his wife. In a twist of courage, Buster plans to stage the show one night without Crystal's knowledge, engaging Miss Crawly to convince Porsha to rejoin.
During the performance, a jealous Klaus attempts to sabotage Johnny's performance, but with Nooshy's support, Johnny proves his worth, earning Klaus's respect. Meena, inspired by her thoughts of Alfonso, performs a romantic duet with Darius, making the scene resonate with real emotion. When Crystal discovers their secret show and grows furious with Porsha's newfound assertiveness, he tries to disrupt the performance by threatening Buster. However, Rosita, finding her courage, overcomes her fear of heights to save him.
Moment of truth arrives as Clay hesitates to take the stage, but Ash leads the audience in singing one of his famous songs, igniting his spirit to finally perform. After the show, Suki manages to have Crystal arrested for putting Buster and his friends in danger. Just as they prepare to depart, Suki reveals that a prominent theater is interested in showcasing their production. As Buster watches from the VIP section, proud of his crew's triumph, they begin their first performance in Redshore City with jubilant hearts.
