A powerful yaojing, Master Dasong, along with the members of his Liushui Guild Hall, find themselves under a brutal ambush by human soldiers equipped with advanced weaponry capable of eliminating several yaojing. In the midst of this chaos, Master Dasong confronts an acquaintance before he is tragically killed.
Fast forward two years after the events of the previous installment, and Xiaohei continues to reside with Wuxian. He is diligently enhancing his metal manipulation abilities, trying to reacquire his lost Domain skills, learning Mandarin, and savoring journeys alongside Wuxian. One fateful day, Wuxian receives an invitation to attend a meeting at the Main Hall with the elders of the Yaojing Guild. During their journey to the building, they are joined by Luye, a yaojing and former student of Wuxian.
At the meeting, the elders interrogate Wuxian regarding the attack on Liushui Guild Hall and his recent activities. They have discovered evidence linking the attack to bullets infused with Roumo-wood, a rare, spiritually imbued wood that has mysteriously gone missing from the Guild's inventory. Furthermore, security footage catches an individual resembling Wuxian leading the attack, deepening the suspicion against him. Despite Wuxian's staunch denial, he finds it challenging to disprove the claims. He speculates that there might be ulterior motives at play aimed at portraying him, the strongest Enforcer, as a traitor to dismantle the Guild's defenses. To clear his name, Wuxian proposes to be monitored by NeZha within the Main Hall since he is among the few capable of matching his strength, while the rest of the guild delves into the investigation to uncover the actual perpetrator.
Meanwhile, Luye and Xiaohei embark on their own investigation, albeit under the watchful eyes of two guild members, Jia and Yi. However, Luye cleverly evades them by teleporting to random locations before sabotaging the teleporter to Dongqiao Guild Hall. Her keen senses lead her to detect remnants of spiritual energy and a trail linked to the Roumo-wood taken from Liushui Guild Hall. As they pursue this trail, they encounter a yaojing named Nihuang, who tries to ambush them. It becomes clear that Nihuang was not only involved in the attack but also possesses the ability to shapeshift into other individuals, including Wuxian himself. After capturing Nihuang, they prepare to return to the Main Hall to exonerate Wuxian.
At the same time, Wuxian is occupied in NeZha's room at the Main Hall, passing his time playing video games, although the tension around him intensifies due to Luye's bold decision to destroy a teleporter to escape supervision. Efforts to find the culprit continue, leading to the discovery of a military base belonging to the humans responsible for the Liushui Guild Hall attack, where some Roumu-wood is found. In response, Chinan, one of the guild elders, personally leads a mission to confront the base and reclaim the wood.
As Luye and Xiaohei struggle to return to the Main Hall due to the damaged teleporter, they choose to travel by plane to arrive the following day. They are accompanied by Jia and Yi. However, mid-flight, they are ambushed by other yaojings attempting to rescue Nihuang. When these attackers successfully free him, chaos ensues, leading to the destruction of the plane. Amidst this, Luye, Xiaohei, and the injured Jia and Yi manage to safely crash land in the nearby mountains. With Jia and Yi incapacitated, Luye pursues the attackers alone. Xiaohei realizes that Luye's actions were strategically devised to draw the culprits out, allowing her to track them more effectively, although he chastises her for endangering human lives in the process. Luye, however, is more focused on her goal of taking down the mastermind behind the assault on Liushui Guild Hall.
Meanwhile, the ongoing investigation into the attacked military base has pinpointed the location of a secondary base housing the remaining Roumu-wood. Members from the guild have rushed there to set up a teleporter in the mountains, preparing for a full-scale assault against the humans. Wuxian, witnessing the gathering of Enforcers outside the Great Hall's teleporter, expresses his desire to participate in the attack to minimize yaojing casualties. However, Chinan dismisses his plan. In a show of unwavering determination, Wuxian halts all Enforcers from passing through the teleporter, leading to a showdown with NeZha that threatens to damage the teleporter. Eventually, Chinan, seeing no other option, permits Wuxian to join the attack.
As Luye continues her pursuit, she tracks Nihuang and his gang to an abandoned steel mill. Here, she faces a challenge as a magical formation prevents her from using her metal powers, despite the abundance of metal around her. Engaging in battle using only her kung-fu, she attempts to dismantle the formation. Suddenly, she encounters Lord Lingyao, a Yaojing Guild elder who dons Dasong's Liushi Armor. Lingyao unveils his role as the mastermind behind the attack on Liushui Guild Hall and the theft of the Roumu-wood, equipping mercenaries with anti-yaojing weapons. His rationale lies in his belief that the Guild's complacency with advancing human technology could lead to the yaojing's downfall. His deception aimed at framing Wuxian as a traitor was part of a plan to incite yaojing outrage against humans.
As the battle rages, Xiaohei appears, using his untapped Space manipulation abilities to aid Luye in dismantling the remaining parts of the magical formation. Despite her injuries, they successfully neutralize Lingyao, who concedes to their strength. However, they soon find themselves engulfed by the explosive aftermath of a magic seal that causes the mill to crumble. While recovering, Xiaohei confronts Luye about her principles, expressing his intention to side with what he perceives as the righteous cause if a war were to arise between yaojings and humans. Luye, unwavering, remains committed to the yaojing cause.
Meanwhile, the Enforcers cross through the teleporter to assist their comrades in survivor efforts against human military fire. Wuxian takes on the military base single-handedly, regaining the Roumu wood while being mistaken for NeZha by the human soldiers due to his casual attire.
Time passes, and Lingyao is now under custody at the Great Hall. Guild elders, including Chinan and Headmaster Yudi, confront Lingyao regarding his actions and the last piece of unexplained Roumu-wood. Lingyao remains tight-lipped, using its absence as leverage to uphold a sliver of peace between yaojings and humans. Although the elders do not endorse Lingyao's ideology, he cleverly points out their own hypocrisy in keeping his transgressions from public knowledge.
With the shadows of suspicion finally lifted from Wuxian, he returns home alongside Xiaohei. In a reflective moment, Luye observes their happiness and contemplates her past with Wuxian, recognizing that her childhood trauma had forged a wall between her and him. Contented to see them thrive, she bids Wuxian farewell, encouraging him to come visit her in the future.
