It has been one year since the events of Hubie and Marina Meet The Swan Princess, and Hubie and his friends' next destination is Swan Lake to celebrate Derek and Odette's anniversary. But the celebration is interrupted by the vandalism of Knuckles, minion of the evil sorcerer Clavius. Clavius was the partner friend of Rothbart, villain of the previous film; they conquered the Forbidden Arts together until Rothbart drove Clavius underground after betraying their partnership. Clavius now wants to claim the magical orb of the Forbidden Arts that is located somewhere in Swan Lake castle, which has become Derek and Odette's new home. Clavius has Knuckles perform acts of vandalism in the kingdom that keep Derek busy and make him neglect both Odette and Uberta.

Pikatwo, on the other hand is ridden with guilt from the events in Agrabah, after almost killing Iago. Despite his friends protests that he is not to blame, Pikatwo still feels responsible. Not far away, a wild female Eevee spies on him.

On Uberta's birthday, she is abducted by Clavius, who wants to use her as leverage. Derek prepares to set out to rescue his mother and asks Pikatwo to join him. Pikatwo agrees, hoping to take his mind of his guilt. Unknown to anyone, the wild Eevee follows Derek and Pikatwo.

Clavius, however sneaks into Swan Lake castle, where he locks Odette, Marina and Fawn in a tower and then goes after the orb himself. Bridget, who was once Rothbart's accomplice but has joined the side of good, recognizes Clavius and knows that he is after the Forbidden Arts. She takes Speed, Puffin, Jean-Bob, Hubie, Rocko, Splatter, Petra, Beanie, Timmy, Bonkers, Buck & Stanley into the catacombs under the castle where they find the orb first. After claiming the orb, they race back upstairs and free the girls. Odette knows now that Derek and Pikatwo are heading into a trap, but Puffin cannot fly because his tail has been injured by Knuckles. Petra, Beanie and Timmy insist they go after them as they can fly, but Odette is afraid to risk the lives of the kids, so she convinces Bridget to use the orb to change her into a swan. Once transformed, Odette flies off to warn Derek and Pikatwo. Clavius stumbles upon the remaining group and a chase ensues throughout the castle. Clavius eventually obtains the orb, and locks Bridget and the others in the watery dungeon, although they later escape.

Elsewhere, Derek and Pikatwo encounter a series of traps set by Knuckles. they manage to outwit them, but Derek eventually gets trapped in a pit of quicksand. Pikatwo tries to save him, but can't do it alone. Suddenly the wild Eevee shows herself and attempts to help him as Odette reaches them in time to save Derek. Pikatwo thanks Eevee and Odette explains they need to return home. Racing back to the castle, they see Clavius escaping in his hot-air balloon, from which Speed, Puffin and Jean-Bob, Hubie and the others are secretly clinging to in the hopes of being able to regain the orb. Buck however is still on ground following the balloon and eventually meets with Derek, Odette, Pikatwo and Eevee. They follow the balloon to Clavius' volcano lair. Knuckles tries to stop them, and after a fight, Knuckles falls into the lava pool beneath the volcano.

Clavius celebrates his regaining the Forbidden Arts again, but Derek arrives and the group free Uberta from her prison. During the fight, Jean-Bob jumps on Clavius' head to stop him from delivering a killing blow to Derek, and Jean-Bob is killed when he is thrown off. Thanks to Eevee, Derek manages to get his hands on the orb, and the group rushes to escape in Clavius' balloon. Clavius tries to stop them, and during the struggle the orb is dropped, which causes a massive explosion and volcanic eruption which kills Clavius while the others escape.

Later, everyone is at Swan Lake, waiting for the moon to rise on Odette, who is waiting on the surface with Jean-Bob on her wing. When the moonlight touches Odette, she is transformed back to her human form and Jean-Bob is revived. The gang celebrate their victory and Uberta's fiftieth birthday.

Pikatwo asks Eevee to join with him, Hubie and the others. Eevee agrees, hinting that she may have feelings for Pikatwo and that was why she spied on him. Hubie and his friends celebrate the welcoming of their new Pokemon member.

The next day, a royal guest arrives at the castle, but Derek asks Rogers to take care of it, as he wishes to spend the day with Odette. The two share a kiss, enjoying their time together alone at last.