A generation has passed since the events of the first Overlord, with the previous trapped in the Abyss. His now born child, the Overlad has since been abandoned in the snowy mountain town of Nordberg where all the villagers fear him as the Witch-boy where a small band of minions help him harass the locals, except for a small girl known as Kelda who warns them of his potential power. The town however comes under siege by the Glorious Empire, a Roman-styled military power, under Emperor Solarius, who opposes all forms of magic. To spare their town, the citizens of Nordberg throw the Overlad out where he escapes to an icy lake outside where a bout with a Yeti causes him to fall into the lake and freeze. The minions take him back to the Netherworld where Gnarl, the minion elder raises him into the new Overlord.
Upon becoming the new Overlord, he scouts the Nordberg countryside where a band of fanatical environmentalist elves lead by Florian Greenheart try and stop him from slaying baby seals and even take in the Yeti. Tracking them down the local elf sanctuary, he regains control of the red minions and quickly burns it down. Following this, the Overlord begins a world conquest, beginning with Nordberg, currently under Empire rule of Governor Borius. Upon conquering the town and making a mistress of the now adult Kelda, the Overlord sets sail to the elven lands of Everlight. However since the glaciers were melted in order to open up the pass for sailing, the land is flooded despite the Empire still in conflict with the local elves. In the town itself, rich Empire citizens are using the town as a holiday resort with a clamp down on magical beings, including the green minions and Juno, an Empire seductress who is accused by jealous overweight females. The Overlord regains the greens, conquers Everlight and takes in Juno as his second mistress.
Juno tells the Overlord of a back entrance into the Empire’s lands, even sneaking in disguised as a Governor. Upon arrival however they fall into the slums, leading into a giant arena, previously mentioned throughout as to where most slaves and magical beings end up. The Overlord finds the last of the minions, the blues but is apprehended by Marius, adviser to Emperor Solarius and put into the arena. The Overlord however wins every round until the final where the Yeti is pitted against him but instead destroys the gates allowing the Overlord to bring down the spectator balcony, causing the Emperor to flee. Back at the Netherworld tower, the Overlord is visited by a mysterious woman who Gnarl vaguely recognizes, who warns him of his own power guiding the Overlord to the Wasteland, a rocky landscape that was once the former site of the previous Overlord’s tower before the Tower Heart exploded. In these lands, the Overlord encounters the last elven sanctuary where their Queen Fay and Florian help him put the Tower Heart back together, seeing the Empire as a greater threat. However there isn’t enough power to restore it and the Empire besieges the sanctuary with Florian captured. Queen Fay allows herself to be drained of power for the Tower Heart, leaving her in an evil state of mind and becomes the Overlord’s third mistress.
With the Tower Heart restored, the Overlord lays siege to the Empire’s capital by catapulting the Heart itself into the city’s anti-magic barrier. While laying waste to the city temples, the Overlord is confronted once again by the mysterious woman who is revealed to be Rose, the previous Overlord’s mistress and current Overlord’s mother. She reveals that the Empire was to bring order to the land for balance between good and evil yet Solarius let the power go to his head. Upon storming the palace, Florian Greenheart appears but reveals that he himself is in fact Emperor Solarius, who previously tried to unlock the power of the Tower Heart that lead to its destruction and instead gathered magic for himself. Upon submerging himself the magic he is transformed into a giant leech-like monster hailed as the Devourer by Marius who is eaten shortly after. The Overlord battles the Devourer before destroying it and Solarius in the process. Following this victory, depending on the player’s actions, the Overlord either destroys the land or enslaves the populace, with the minions throwing huge parties. Either way, Gnarl reveals that even the Overlord’s power might wane along with personal ambitions, finishing once again with "Evil always find a way".