One year after the events of the first film, Julie James is attending summer classes in Boston. She suffers from memories and nightmares of her friends' Helen Shivers and Barry Cox brutal murders by the vengeful fisherman, Ben Willis. Julie's roommate, Karla, receives a phone call from a local radio station and wins a vacation for four to the Bahamas (in the movie, the radio station asks the question "what is the capital of Brazil", the girls answer "Rio de Janeiro," and get it right-despite the fact the answer is "Brasilia"). Julie invites her boyfriend, Ray, who declines, but later changes his mind. That evening, Ray and his co-worker, Dave, drive to Boston to surprise Julie, but stop due to a body in the middle of the road. When Ray discovers the body is a mannequin, Ben appears and kills Dave with his hook. Ben then chases Ray in a truck, but Ray escapes and falls down a hill.
The next morning, Julie, Karla, Karla's boyfriend, Tyrell, and their friend, Will, depart for the trip. The group arrives at the hotel in Tower Bay and checks in. That evening at the hotel's bar, Julie is singing karaoke when the words "I STILL KNOW WHAT YOU DID LAST SUMMER" roll onto the screen. Terrified, she runs back to her room while the others get into the hot tub. Julie notices that her toothbrush is missing and searches her room before finding Darick, the dockhand, dead in the closet. She finds her friends and they return to find no sign of Darick's body and the hotel manager refuses to believe her story. Meanwhile, Ray survived his injuries and heads out to rescue Julie.
The next day, the group finds the hotel staff murdered and the two-way radio, their only way of contact, destroyed. Isolated, the group goes to the room of Estes, the boat hand porter, and find that he has been using voodoo against them. Estes appears, explaining he was trying to protect them after realizing their answer to the radio station's question was incorrect. He tells them Ben and his wife, Sarah, had two children: a son and a daughter. Ben murdered Sarah when he found out about an affair. Estes goes missing and Will volunteers to find him, while Ray takes a boat to the island. Julie, Karla and Tyrell return to the hotel and find Nancy, the bartender, hiding in the kitchen.
