Two years after the first film, Stuart Little (Michael J. Fox) questions his ability after a grueling soccer match alongside George (Jonathan Lipnicki), who kicked him with a soccer ball. Stuart becomes even more downhearted after George's toy airplane gets broken in an accident because of him. However, Stuart's dad (Hugh Laurie) tells him that for every Little, there is a "silver lining"- a good thing that comes out of an apparently bad situation. On his way home from school, Stuart saves a female canary named Margalo (Melanie Griffith) who is being pursued by a peregrine falcon (James Woods), and they become friends. But Margalo is secretly working with the Falcon to case and steal from households. When he presses her to find and take an object of value, or lose the sanctuary he promised her, Margalo can't seem to concentrate on her assignment, as she is beginning to have tender feelings for Stuart. Falcon eventually loses patience and threatens to kill Stuart if she doesn't deliver.
Sadly, Margalo takes Mrs. Little's (Geena Davis) diamond ring. When the family sees the ring is missing, they think it has fallen down the sink. Stuart offers to be lowered down the drain on a string to get it, and nearly succeeds. When the string breaks Margalo saves him, and his thanks to her only make her feel even more guilty, so she decides to leave.
When Stuart can't find her, he assumes she has been kidnapped - and that Falcon is somehow involved. He leaves on a quest to rescue her with the household's reluctant cat Snowbell (Nathan Lane), but not before setting up a plan with George. Stuart and Snowbell decide to get information on Falcon's whereabouts, so they enlist the help of Monty, an alley cat (from the original film) (Steve Zahn), who tells them that Falcon's lair is at the disused observation deck of the nearby Pishkin Building (in reality a heavily modified CGI version of the Chrysler Building). Stuart and Snowbell hatch a plan to use balloons to get Stuart to the top, where he finds out that Margalo is Falcon's slave, and was forced to take the ring. He tries to save her, but Falcon captures him, and drops him from an immense height to his presumed death; however he lands on a soft trash bag in a garbage truck. Snowbell goes to the top and learns from Margalo that Falcon killed Stuart. On a garbage scow where he has ended up, Stuart blames himself for everything, and has almost lost all hope. But suddenly, he finds George's broken plane, fixes it up, and flies to save Margalo, who, having been freed by Snowbell, just fled from Falcon.
The Littles, who have discovered his absence, follow Stuart by taxi as he begins an aerial adventure through the park, with Margalo at his side. Eventually, they lose him, but he catches up and makes an attempt to kill Stuart, when he detaches the upper wing of the plane, damaging the main wing and causing it enter a steep nose dive, which fails when Stuart recovers from the dive, nearly missing the Littles. Stuart then realizes he can't run from Falcon, and lets Margalo off. Stuart turns and flies the damaged plane in a kamikaze run while Falcon goes into an attack dive. Stuart uses Mrs. Little's ring to temporarily blind Falcon, and jumps out using a bandana as a parachute. The kamikaze attack works and Falcon is struck head on and defeated. Although Falcon survives the attack, he falls out of the sky and lands in a garbage can that Monty is scavenging in, and is presumably eaten by the cat, but not before Stuart falls when his parachute is sliced apart by the propeller of the shattered plane, and then is rescued by Margalo.
Stuart is congratulated by his family, and Margalo, who gives Mrs. Little her ring back, and Snowbell reunite with them as well. That evening, Margalo leaves with the other birds to migrate south, but not before saying goodbye to her friends. Stuart says the "silver lining" is that she'll be back in the spring, and his baby sister, Martha, says her first words: "Bye bye, birdie.