The film begins with Alice (Milla Jovovich) recalling the key events from the first film. The Umbrella Corporation sends in a research team to re-open the complex. The entire team is slaughtered by zombies and Lickers who have been sealed within the complex. The virus and infectious zombies will make their way to the surface. Umbrella establishes a security perimeter around the city to keep the citizens in a quarantined area.
Alice wakes up in a downtown hospital, recalling her recent memories. As she awakes she finds herself in a hospital room. She rips IVs and various probes, wires and tubes from her body. As she exits the hospital, she recognizes the virus has escaped causing devastation in the streets and makes her way to a police car where she grabs a shotgun from the front seat.
As civilians reach the checkpoints, Umbrella operatives screen them for traces of any infection, until Major Timothy Cain, orders all checkpoints to be closed, as the infection already reached the gates, and then he informs the remaining citizens to return to their homes. No one responds to the order, and the military threatens them after hoaxing a shoot-out.
Dr. Charles Ashford (Jared Harris), a key Umbrella scientist and creator of the T-Virus, has refused extraction by Umbrella until he has his daughter Angela (Sophie Vavasseur). As he hacks into Raccoon City's network of closed circuit cameras, he determines she is hiding out in her school and contacts Alice and her group.
Elsewhere, Carlos Olivera (Oded Fehr) and two other Umbrella soldiers Nicholai Ginovaef (Zack Ward) and Yuri Loginov link up with multiple Special Tactics And Rescue Squad units. Jill Valentine (Sienna Guillory) (a S.T.A.R.S. unit member) together with former Raccoon News weatherwoman Terri Morales (Sandrine Holt) and Peyton Wells (Razaaq Adoti) retreat to a church, where they are attacked by Lickers before being saved by Alice. In the church Terri is recording their encounters with the zombies and other monsters.
When the infection reaches critical stages, Umbrella dispatches their Nemesis program (Matthew G. Taylor) to kill all remaining Special Tactics And Rescue Squad operatives and as many of the undead as possible. However, when he encounters L.J. Wayne (Mike Epps), and thirteen other members of S.T.A.R.S, they open fire on Nemesis, but it is ineffective against him. Nemesis guns them down, sparing only L.J.'s life. The Nemesis then kills Peyton, who then turns and is shot by Jill.
Dr. Ashford reveals Umbrella's plan for sanitizing Raccoon City: obliteration via nuclear bomb. He offers to help Alice, Jill, L.J., and Terri escape Raccoon City if they return his daughter to him, alive. Jill, L.J., and Terri drive to the school in which Angela Ashford is located. Inside the school, the group encounter Carlos and his team, who have also been given the same offer. Terri Morales is mauled by the infected school children when she mistakes one of the infected children for Angela. Her death is recorded with the camcorder that she had.
Jill manages to find Angela in the very classroom where Terri was killed. While trying to escape, Jill Valentine is attacked by the infected K-9 Unit dogs. Umbrella soldier Nicholai Ginovaef comes to her rescue, but is ultimately killed by the dogs. Alice meets up with both Jill Valentine and Angela Ashford after saving them from the attacks of the dogs.
The group finds out that Ashford created the T-Virus in order to prevent Angela from being paralyzed and that the Umbrella Corp took his invention for the corporation's usage. The group uses the antivirus in Angela's bag to inject those who are infected. They get into contact with Ashford and he gives them the location of the extraction point, and tells them that it's "lightly guarded." Alice records her story with Terri's video camera as they travel to the extraction point.
Alice and the other survivors are confronted by Major Cain. Cain had been aware of Ashford's plan. Cain captures him along with Angela and the others who accompany Alice. Cain, after killing Dr. Ashford, forces Alice to fight Nemesis for her friends' lives. She realizes Nemesis' true identity (her friend, Matt Addison) and refuses to deliver the killing blow. Her mercy appears to rekindle a trace of Nemesis' former humanity, and they join forces and attack the Umbrella troops. While Nemesis is killed in the fight, Alice and the others escape in the helicopter piloted by L.J. Major Cain is thrown off the helicopter by Alice, and is eaten alive by zombies after his attempt to commit suicide failed (with, ironically, the reanimated Dr. Ashford being the first to get to him).
The N-2 Missile flies above Raccoon City, reaching the towers, and then drops a 5 kiloton tactical nuclear device which obliterates the whole city. The shock wave sends a piece of metal hurling towards Angela. Alice moves in front of her and is impaled by it. The helicopter then crashes into the Arklay Mountains. Alice is recovered by Umbrella, the rest of the occupants escape before the crash site is located. Terri's video is recovered and released, and flashes of news scenes appear. At first the scenes show a public suspicious of Umbrella, but it is soon revealed that Umbrella hushed up the incident by explaining that the nuclear explosion was caused by a failed reactor. By the end of the series of news clips, Terri's video seems to have been regarded as a hoax, and those featured in it are called in by the police for questioning.
Alice is taken to an Umbrella research station, after several weeks she awakens in a water tank, completely regenerated from her injuries, but is an amnesiac and can remember nothing of what has transpired. Led by Umbrella scientist Dr. Isaacs (Iain Glen), the doctors question her: the queries cause her to recall everything that has happened to her. She contemptuously snarls "My name is Alice… and I remember everything." She fights her way out of the facility showing some of her darkest powers yet, only to be surrounded by dozens of armed guards. Jill, Carlos and L.J., disguised as Umbrella employees, pull up in an SUV. Carlos shows the guards a written order placing Alice in his custody. The guards stand down and Alice enters the waiting vehicle only to see Angela in the back seat. Angela asks Alice if she is alright, to which Alice doesn't respond. Dr. Isaacs is shown announcing "Program Alice Activated," and the film comes to an end.