The film opens as if the events of the first film took place in reality, but this is a film within a film that the various residents of a high-rise apartment building are watching. Its story follows several teens who trespass into a city that was deserted as a result of the outbreak. Finding the lifeless corpse of a demon, one of the teens revives it accidentally by dripping blood from a scratch into its mouth.
In reality, frustrated party girl Sally Day locks herself in her bedroom when her boyfriend does not attend her sixteenth birthday party. As her friends try to persuade her to return to the party, she watches part of the film on television. Suddenly, the demon notices her, climbs through the television and attacks her. Sally is transformed into a demon and attacks her friends, turning all but two of them into vile, bloodthirsty monsters.
The creatures' bile seeps through the building, burning through the ceiling and into other apartments and shorting out the electrical system. In one apartment, a dog licks up the bile and transforms into a vicious beast that attacks and kills its owner. A young boy left alone by his parents avoids Sally and her rampaging demon friends but is ultimately poisoned by the bile and becomes a monster. The demon boy attacks Hannah, a pregnant woman waiting for her husband to come home. She kills the demon boy, but a flying demon bursts out of his body to further terrorize her. Her husband, George, has been trapped in the elevator with another woman. As they escape through a service hatch, a demon bursts through the elevator door and infects the woman. She in turn attacks George, but he kills her before entering his and Hannah's apartment in time to kill the flying demon with an umbrella.
Meanwhile, a group of bodybuilders led by gym instructor Hank have barricaded themselves in the underground car park, along with a group of tenants. Unable to break down the garage doors, they stand their ground and defend themselves with shotguns and makeshift weapons, such as Molotov cocktails. The demons eventually force their way in. Although they heavily outnumber the demons, the uninfected are relatively easily defeated and are either turned into demons themselves or killed.
The infected start making their way back up the building. George causes a leak in the gas pipes that kills all the infected except Sally in an explosion. Hannah and George search for a way out and go into Sally's apartment, finding the two hidden partygoers. The group make their way to the roof but are stopped by Sally. She infects the two partygoers, but George dispatches them. George and Hannah lower themselves to the roof of an adjacent building, fighting Sally as they go. Inside the neighboring building, Hannah gives birth to the couple's child. George defeats the resilient Sally in mortal combat, and he and Hannah exit with their newborn child.
For the sequel, Boswell chose to use British new wave bands such as The Smiths, The Cult, Dead Can Dance, and the Art of Noise on the soundtrack as opposed to the heavy metal of the original film. Songs featured in the film are:"Panic" by The Smiths"Heartache" by Gene Loves Jezebel"(Here Comes The) Rain" and "Rain" by The Cult"Power" by Fields of the Nephilim"Backbeat" by Art of Noise"Blue Heart" by Peter Murphy"De Profundis" by Dead Can Dance"Kundalini Express" by Love and Rockets"How It Shone" by Pierce Turner"Blood and Flame" by Caduta Massi"Live in TV" by The Producers
Demons 2 has an approval rating of 56% on film review aggregator website Rotten Tomatoes based on nine reviews. AllMovie's review was negative, writing, "putting aside the simplistic plot, lousy dialogue and atrocious acting, Demons 2 is watchable for one reason: the bloody mechanical and makeup effects by Sergio Stivaletti." Reviewing the film on Blu-ray, Budd Wilkins of Slant Magazine rated it 3/5 stars and wrote that it "trades in its predecessor's penchant for wall-to-wall gore in favor of surreal shocks and quasi-Cronenbergian craziness". Writing in a retrospective for Dread Central, Matt Serafini called it "much more a mixed bag than its predecessor" but questioned why it never led to a franchise. Serafini suggested a new generation of Italian filmmakers continue the series, including the practical effects and new wave music of Demons 2.
Arrow Video released the first two films on Blu-ray and DVD on 30 April 2012 with a two-part comic included, entitled Demons 3. Part 1 came with Demons and the last part with Demons 2.