Eight years after the events of the first film, Miami Police Department (MPD) narcotics division detectives Marcus Burnett and Mike Lowrey are investigating a flow of MDMA into the city, leading them to a KKK meeting and drug drop. The subsequent raid is botched due to weak radio signals, and in the firefight wherein several klansmen are either vanquished or injured. During this investigation, both of them reprimand these klansmen using merciless abusive language, then a shootout occurs as Mike accidentally shoots Marcus in the buttocks. Then the other cops soon arrive at the area and capture the surviving Klan members, who are revealed not to be the distributors but only mere small-time buyers of the drugs.
Marcus questions if he wants to remain partners with Mike. Meanwhile, Mike is concealing a relationship with Marcus' sister, Syd. Syd, unbeknownst to both Mike and Marcus, is an undercover agent of the Drug Enforcement Administration, laundering money for a Russian gangster group, who distribute ecstasy on behalf of Cuban drug lord Johnny Tapia.
While transporting this money between the Russians and Tapia, Syd is suddenly attacked by vicious hayti hitmen planning to steal it. Mike and Marcus inadvertently stumble into the action, resulting in an intense gunfight and car chase, devastating the local area and enraging Police Captain Conrad Howard. Marcus and Mike discover Syd's involvement, and Capt. Howard demands they find the supplier of ecstasy.
Both Marcus and Mike sadistically confront, curse, and conquer this hayti gang, plus find out from their leader after interrogating him thoroughly that a local mortuary is possibly being used by Tapia as a front for more money laundering. The pair then go to penetrate Tapia's mansion disguised as pest exterminators, and discover that Tapia has gotten rid of some of his Russian distributors and has begun to court Syd, still undercover with the DEA, for distribution.
The detectives locate the boat used for drug smuggling after forcing an captured Klan member to reveal its location, observe a morgue van make a rendezvous with it, and give chase unsuccessfully. Mike and Marcus infiltrate Tapia's mortuary disguised as ambulance drivers, and learn that he is using dead bodies to smuggle drugs and money. When the pair are almost discovered, Marcus accidentally ingests some of the ecstasy and Mike orders the disguised officers outside the building to crash an ambulance into it, creating a diversion.
The mortuary and Tapia's mansion are raided, the drugs and money intercepted by the U.S. Coast Guard. However, during the raid a vengeful Russian gangster, Alexei, goes to the mansion on his own, planning to get revenge for his friends that died. He soon meets the exact fate as the cops arrive and eliminate him by shooting him while Tapia discovers Syd, kidnaps her and takes her to Cuba.
With Syd held hostage in Tapia's compound and guarded by the Cuban army, he demands the return of his money in exchange for Syd. Mike and Marcus, with a team of volunteer S.W.A.T. members and the DEA, assault Tapia's compound, rescuing Syd, and destroying the building.
The group flee, an infuriated Tapia in pursuit, which ends in a minefield outside of the U.S. Naval Station Guantanamo Bay, where Tapia holds Mike at gunpoint, with guards at the naval station threatening them. Syd then tosses her pistol activating one the mines causes it to explode which annihilates Tapia's thug. Then Marcus defeats Tapia by shooting his forehead, causing him to fall backwards on a few of the landmines and they explode reducing him to a pile of scattered body parts as a grateful Mike thanks and congratulates Marcus for rescuing him before kissing Syd.
Later, while they lounge in the new pool back at the Burnett house, Marcus finally makes peace with Mike dating Syd. Marcus's peace is short-lived when Mike informs him that he and Syd can't be together because of Marcus and his attitude. While a playful argument ensues over transfer papers, the family dog destroys the above ground pool, washing both of them into the sea as Marcus and Mike re-affirm their partnership as they celebrate their patriotic victory by singing Bad Boys.