The sequel takes place approximately six months after the events of the first movie. Rachel Keller (Naomi Watts) and her son Aidan (David Dorfman) have moved from Seattle to the quiet coastal community of Astoria, Oregon. Rachel begins a new job at the Daily Astorian, a local newspaper, working for Max Rourke (Simon Baker).

Before long, there is news of a teenage homicide in town. The details surrounding it sound all too familiar to Rachel, who decides to investigate. She finds the corpse of Jake, a young man who has watched the cursed videotape. Nearby is Jake's friend Emily, who is alive but badly traumatized by Samara Morgan's attack. Rachel finds that Jake's face, like that of the other victims, has an expression of horror. As Rachel is about to leave, an apparition of Samara reaches out to Rachel, saying "I found you" before disappearing.

Rachel finds and destroys the tape. At the exact same time, the television at Rachel's house turns on to the last scene of the tape (the well in which Samara was pushed), and Samara appears to Aidan. She drags him into the television and after that Aiden wakes up. He starts to develop hypothermia, and is covered with bruises. Later, Rachel's house shakes and rattles in a manner similar to a poltergeist. At a local fair, Aidan can see Samara in a mirror, drawing closer and he takes photos of himself where Samara is visible. As they leave the fair, the car is repeatedly attacked by deer, almost killing them, that are drawn for some reason to Aidan.

They return home and while Rachel is talking on the phone with a doctor the electricity runs out. Rachel goes upstairs to Aiden and sees Samara in the corner. She runs to Aidens bed, but he's not there, he is standing in the corner. Rachel takes him away from there and after that a form of a tree is burned in the walls. They come to Rachel's office and meet Max. Rachel tells him that Aiden is sick and asks if they could come to his house, he agrees. There she puts Aiden in a bath to rise his temperature and goes back to the house to pick up some stuff. When she returns the bathroom door is locked. After Max leaves, to get something to open the door with, it opens. Rachel walks in and sees that the water is everywhere (even on the ceiling) and Samara is holding Aiden. She drags him away from her and all the water falls down. Rachel tries to draw Aiden out of the water, but draws out Samara. Rachel drowns her, but when Max returns it's again Aidan and he thinks that Rachel tried to drown her son.

Aidan is hospitalized. The staff, particularly psychiatrist Dr. Emma Temple (Elizabeth Perkins), suspect Munchausen by proxy on Rachel's part and won't allow her to be near him. Desperate for answers, Rachel travels to Seattle to dig deeper into Samara's past and origins. She discovers that Samara was not Richard and Anna Morgan's biological child (confirming her strong suspicions in the first movie). She tracks down Samara's birth mother, Evelyn (Sissy Spacek) (she had her daughter when she was sixteen years old, and is currently forty-six at the time of the scene), who tried to drown Samara as an infant and has been living in a mental institution ever since. Meanwhile, Dr. Temple meets with Aidan, who is behaving very differently, possessed by Samara. When Dr. Temple refuses to let Aidan see Rachel, he/Samara inflicts a psychic assault on her resulting Dr. Temple grabbing an empty syringe and injecting air into her veins, thus killing herself by gas embolism.

Evelyn insists that Samara had no father, other than an entity from the sea (a likely nod to the original Japanese Ring) and advises Rachel to "be a good mother" and "listen to her baby" when she seeks advice on how to deal with Samara. Rachel drives back home, only to find that Max's car is outside of her home. She walks in, and Aidan hugs her from behind, scaring her. Rachel looks to the side, seeing that Max's coat is on the chair. Rachel starts to suspect something, and tells Aid

The story begins with two teenage girls discussing the events of the previous weekend, during which one of them, Katie Embry (played by Amber Tamblyn), went to a cabin in the mountains to spend time with some friends. While talking, the subject of a supposedly cursed videotape is brought up. The other girl, Rebecca 'Becca' Kotler (played by Rachael Bella), states that anyone who watches this video receives a phone call, in which a voice says, "you will die in seven days." Then, exactly seven days (to the minute) after viewing the tape, the viewer dies. Katie reveals in horror that she had watched that video at the cabin last weekend with three friends, exactly seven days earlier. After a series of unexplainable occurrences, involving a television in the house turning itself on and eerie sounds, Katie is mysteriously killed while Becca has the misfortune of watching, causing her to be institutionalized in a mental hospital.

The film then introduces Katie's aunt, Rachel (played by Naomi Watts), a journalist living in Seattle. Her son, Aidan, was not only Katie's cousin but also a good friend, and seems to be sensitive to psychic occurrences. Aidan's teacher brings to Rachel's attention that he had been drawing pictures of his cousin dead in the ground for days before Katie actually died. At Katie's funeral, Rachel's sister asks her to investigate her daughter's death, and, as she begins, she learns of the videotape. Her investigation leads her to the same cabin in the mountains where Katie and her friends had watched the tape. There, she finds the tape and eventually watches it. After that the phone rings and a girl says - seven days. The next day she calls Noah, Aiden's father, to see the video. He asks her to make a copy for further investigation. Unfortunately, Aidan watches the tape a couple days later.

After viewing the tape, strange things begin to happen to Rachel, and presumably anyone else who had viewed the cursed images. She experiences terrible nightmares, nose bleeds, and curious surreal situations (such as when she pauses a section of the cursed tape in which a fly is running across the screen, she finds she is able to pluck it from the monitor). Rachel's investigation turns to the tape itself, which contains a seemingly random series of disturbing, grainy, black and white images. Investigating those images leads Rachel to Anna Morgan (the woman seen in the tape) who lived on Moesko Island with her husband and daughter, and raised horses. Rachel discovers that a mysterious tragedy befell the Morgan ranch, in which all the horses seemed to go mad, killing themselves attempting to flee the ranch. For reasons that were never completely explained, this presumably caused Anna Morgan to become severely depressed, and shortly after taking residence at a mental institution, to commit suicide. Rachel goes to the Morgan's house and finds Richard Morgan who refuses to talk about the video or his daughter. Rachel goes to see the local doctor to ask about the Morgan family. The old doctor tells her that Anna wanted a child more than anything, but was never able to successfully carry a fetus to term. One winter they left and returned with Samara whom they adopted. But after some time Anna started complaining about visions that only happened when Samara was around, so she sent them both to a mental institute on the continent. Noah goes to the institute and finds Anna Morgan's file and discovers that a video is missing. Rachel goes back to the Morgan's house and after watching the video of Samara's conversation with the doctor is confronted by Richard Morgan. He states the girl was evil, and then promptly kills himself with an elaborate toaster-in-the-bathtub type scheme.

Noah arrives at the house just after Richard's death, and together with Rachel, he goes to the barn to discover a little room where Samara was kept by her father. Behind the wallpaper they discover a burned image of a tree recognizable from the video tap