Shortly after the conclusion of the first film, the piranhas from the military camp have in fact reached the ocean, and have somehow mutated into winged creatures. Meanwhile, off the coast of a Caribbean island, a young couple flee a hotel to have sex in the sea. But they swim into a sunken wreck which is also a piranha lair and they are both killed and eaten by the unseen piranha.
The next day, a group of tourists, including Tyler Sherman, are taking the diving courses provided by Anne Kimbrough, an employee of the Hotel Elysium. One of her divers swims into the wreck, which she has strictly forbidden to her divers. Leaving Tyler to take over and lead the others to the surface, she discovers almost immediately that her 'missing' student has swum into the wreck and been killed there when his badly chewed up body is found.
Anne's estranged husband, Steve, a police officer, refuses to listen to Anne about her wanting to have a look at the body, because she needs to know what happened. The death does not seem to match the attack pattern by any of the marine life in this area, which she knows better than anyone. For her not to know what killed a diver is a dangerous sign. Steve intercepts Gabby, a dynamite fisherman, and his son, and threatens to confiscate their boat, but as Gabby explains, Steve, Anne, and he, are old friends.
Meanwhile, as the guests begin to flirt with each other, Jai and Loretta, a pair of women, arrive on a large boat. By their own admission, they are sea bandits. Jai sneaks into the kitchen to steal food, but is intercepted by Mel, a cook. She flirts with him, and he offers instead to make her a wonderful dinner. But as he goes to their boat with the meal, they take the meal and then unlock, letting the boat drift. Jai and Loretta try to convince Mel to jump, and he tries, and fails, so they mock him and sail off. They sail too far out, and are attacked and killed by the piranha, who have developed the ability to fly.
Worried about what is going on, Anne finds that she is being frequently bothered by Tyler Sherman, so she takes him with her to the morgue to get a look at the body. It is revealed there that she became a marine biologist before she married Steve, and so she begins taking pictures. There, she finds that the bodies have been eaten in many parts. A nurse comes in and kicks them out, unaware that a piranha was hiding in the body and escaped it. Armed with the power to fly, it kills the nurse and escapes out a window.
In her hurry, Anne left her credit card behind at the scene. Anne and Tyler have a one-night stand, but in the morning, while he sleeps, she begins to study the pictures, and is horrified by what she discovers. Steve arrives, throwing the card at her, angry first that she went to the morgue in defiance of him, and secondly that she has a man in her bed. She tries to warn him of what she has discovered, but he ignores her and thinks she is a murderess.
Anne tries to tell the managers that she is canceling the dives because it is not safe. He at first pretends to be concerned, but swiftly fires her, thinking she is crazy. Attempting to capture one for further study, or at the very least take some pictures so she can prove what she is trying to tell Steve and the manager, she is intercepted by Tyler, who swiftly informs her that he is a biochemist and member of a team which has developed the ultimate weapon: a specimen of genetically modified piranha, with some other fish's genes intermixed, capable of flying. Earlier, and unfortunately, the team mistakenly deposited (or lost) a cylinder full of these fish in the water where the dead couple were found.
Gabby provides the proof Anne needs to Steve, calling him and showing him, not merely some flying piranha he has recently caught, and never seen before, but also that they are a serious danger, because they are turning on each other. This is a sign that they are running out of food and will soon attack whatever they come near, including humans. At a meeting, Anne tries her best to reason with the manager, to no avail. Steve surprises her, standing up for her and proving her case for her by throwing the body of a dead piranha onto the table. Steve tells her that she cannot trust Tyler, because the army says he is crazy. She argued that Tyler has just been using her to get the message of the piranha out for him, to protect both himself and the residents of the hotel.
Later on, a piranha attacks Gabby's son and kills him, leaving a bereft Gabby to vow revenge by killing the fish in the wreck in which they hide. Anne tries to dissuade him, but it is too late. Having ignored Anne's advice, the manager, Raoul, hosts a nighttime fish party to capture grunion, who come up to the beach to spawn at this time, making them easy prey for humans to capture and kill. Unfortunately for the residents, the piranha are also partially grunion and share the same instinct. Anne gets a man named Aaron to patrol the beach but he is lured to the sea where the piranha mutilate and kill him. During the fishing party promoted by the resort, the piranhas fly out of the water and attack and kill some of the guests on the beach and at the hotel's courtyard pool. Anne leads those who survive into hotel, where they shut the doors and windows. Gabby tries to attack the flying piranha, but they easily overwhelm and kill him, while the guests watch helplessly.
In the morning, the flying piranha withdraw back into the ocean, for Anne had discovered that they are not fond of daylight. Tyler and Anne decide to undertake Gabby's plan, and blow up the ship to destroy the predators. Meanwhile, the situation gets even tenser, for not only can the piranha fly, but Anne and Steve's son Chris has been hired, against their wishes, by a local ship 'Captain' Dumont and his lovely daughter Allison. They sail away and strand themselves on an island, leaving them vulnerable to piranha attacks that never actually happen. Getting lost at sea, they try to set sail again, heading straight toward the wreck.
When Chris and Allison are stranded in a raft above the shipwreck, Anne and Tyler arrive in a motorboat and don scuba gear to dive down to the wreck to plant the timer charges that Gabby left behind. With only 10 minutes to get out of the wreck before the bomb explodes, Anne and Tyler are trapped in one of the sunken ships rooms by the murderous piranha who all return to the wreck. On the surface, Steve, piloting a police helicopter, ditches the chopper and swims to Anne and Tyler's motorboat where Chris and Allison are. With minutes left to spare before the bomb explodes, Steve powers up the boat and takes off. Down in the wreck, while swimming through the vents, Tyler becomes stuck and is eaten by the piranhas. Anne escapes out of a porthole, then ties a survival rope around her waist, allowing herself to be pulled away by the motorboat on the surface. At the last second, Anne gets clear and the bomb detonates, destroying the sunken ship and all the piranha with it. With all the piranhas dead, Anne swims to the surface and is picked up by Steve, Chris and Allison in their boat.
The original director of Piranha II was Miller Drake. Drake was yet another Corman graduate who had labored alongside Joe Dante in the New World trailer department – and had essayed the role of “First Mutant” in Dante’s directorial debut, Hollywood Boulevard – before becoming Corman’s de facto head of postproduction. “Jeff Schechtman said, ‘Would you like to direct this movie?’ and I said, ‘Sure,’” recalls Drake. "We met with Ovidio Assonitis and he said 'Fine.'” Drake set to work developing a script with writer Charles H. Eglee, who would later collaborate with James Cameron on the TV show Dark Angel. Miller’s intention was that Piranha II should hinge upon Kevin McCarthy’s scientist from Piranha, even though he had seemingly perished in the first movie. “I pitched this idea of bringing Kevin McCarthy back, all chewed up and mutilated from the previous movie,” says Drake. “He was on an abandoned oil rig and he was developing these flying piranhas out there to get revenge, or whatever. I think we were going to bring Barbara Steele back and have him kill her by smashing her head through a fish tank."
Assonitis removed Drake from the movie and decided to replace Drake with James Cameron.
James Cameron was originally hired as the special effects director for this film and took over the direction when the original director left (Cameron also re-wrote the screenplay under the pseudonym H. A. Milton). Due to budget limitations the crew was composed essentially of Italians, none of whom spoke English. Some however did have prior experience on horror/fantasy movies so they were, to some extent, able to satisfy Cameron's requirements.
After the first week of shooting, the set harmony was disturbed by some discussions about the work between the director and the producers (the executive producer, Ovidio G. Assonitis, asked to verify the day-to-day activities, arguing with most of Cameron's choices), so while Cameron was only responsible for the shooting, most of the decisions were under Assonitis' authority. According to Dreaming Aloud, a biography of Cameron by Christopher Heard, Cameron was not allowed to see his footage and was not involved in editing. He broke into the editing room in Rome and cut his own version while the film's producers were at Cannes, but was caught and Assonitis re-cut it again.
In a 2008 interview on The Hour, Cameron jokingly denied breaking into the editing room, then recounted the story as a "hypothetical scenario", and told host George Stroumboulopoulos how he "would've broken into the office" if he actually did it.
Cameron was able to make a deal with a distributor, who agreed to buy his footage and allow him to re-score and re-cut the picture-basically restructure it to what was originally intended-before release, so his alternative vision eventually came out on home video in some regions, which made a profit for the distributor.
As in the first film, which was one of many horror films inspired by the success of Steven Spielberg's 1975 film Jaws, piranhas act as the antagonist monsters harming human life, and have developed the ability to fly, which they did not have in the first film. On the Terminator 2: Judgment Day commentary track, Cameron jokingly defended the film, tongue firmly in cheek, as "the finest flying killer fish horror/comedy ever made." He would later employ some of the same mechanisms used to make the piranhas fly in the facehugger animatronics for Aliens.
Most of the underwater scenes were filmed off Grand Cayman, and the stand-in for the Club Elysium is the Mallard Beach Hyatt, now the Sunset Jamaica Grande in Ocho Rios. Interior scenes were filmed on a sound stage in Rome.
Some critics called the film "abject", others opined that "the piranhas...look as though they had been remaindered from a joke shop" and that they resembled "haddock with dentures". According to Tim Healey in The World's Worst Movies (1986) the film is "a strong contender...for anyone's list of all-time horror turkeys". The film holds a 7% approval rating on Rotten Tomatoes, based on 14 reviews. It was a box-office bomb.
James Cameron refers to The Terminator as his first feature-length film, despite the fact that it was made in 1984, three years after Piranha II: The Spawning. However, Cameron acknowledged the film in a 60 Minutes segment with interviewer Morley Safer in 2010, referring to Piranha II as "the best flying piranha film ever made".