David Zucker returns from the first entry as director and screenwriter of the film. Jim Abrahams and Jerry Zucker serve as executive producers for the film and receive writing credit due to their contributions to the first entry of the series and the Police Squad! television series. However, neither contributed to the screenplay for the film.
Frank Drebin (Leslie Nielsen) is honored at the White House, where President George H. W. Bush (John Roarke) announces that he will base his recommendation for the country's energy program on Dr. Albert Meinheimer's (Richard Griffiths) advice, which will be revealed during the doctor's speech at the National Press Club dinner the following week. The heads of the coal and oil (fossil fuel) and nuclear industries are apparently distressed by this fact, as Dr. Meinheimer is an advocate for renewable energy. Jane Spencer (Priscilla Presley), now separated from Frank and working for Dr. Meinheimer, is working late at Meinheimer's research institute when she spots a man leaving in a van. A maintenance worker discovers a clock with dynamite attached and takes it to the security guards, accidentally triggering it.
The next morning, Frank reacquaints himself with Jane as he interviews her about the explosion. He is shown around the institute and meets Jane's boyfriend, Hexagon Oil executive Quentin Hapsburg (Robert Goulet), of whom he becomes exceedingly jealous. Frank's boss, Ed Hocken (George Kennedy), finds him and Jane at a lonely blues bar, where Frank promptly blows a chance to make up with her. Meanwhile, at a meeting of the "energy" industry leaders, Hapsburg reveals that he has kidnapped Dr. Meinheimer and found an exact double for him, Earl Hacker, who will endorse fossil and nuclear fuels at the Press Club Dinner.
Police Squad tracks down the van driver, Hector Savage (Anthony James). Once he discovers the cops are onto him, Savage holes up in a house, demanding money. Frank then drives a SWAT tank into and through the house, inadvertently allowing Savage to escape. Frank causes more damage when he loses control of the tank and crashes into the city zoo, allowing the animals to escape. At a party that evening, Frank notices that Dr. Meinheimer does not instantly remember him, despite Jane telling him that Meinheimer had a photographic memory; Frank confronts her with this at her apartment following the party, but is dismissed. Moments later, Savage enters the home and tries to kill Jane. Frank becomes aware of Savage and kills him by sticking a fire hose into his mouth and turning it on full blast. Jane realizes that Frank was right and the two then rekindle their romance.
The next day Police Squad stakes out Hexagon Oil's headquarters where Dr. Meinheimer is being held. Frank tries to go undercover into the building, but instead is discovered and tied up by Hapsburg's henchmen. Frank and Dr. Meinheimer are eventually freed, and Police Squad then go to the Press Club Dinner. Finding their only way in locked, Frank, Ed, Nordberg (O. J. Simpson), and Dr. Meinheimer commandeer a mariachi band's costumes and head inside, where Hacker is eventually intercepted, allowing Meinheimer to give his speech. Hapsburg flees the dinner and takes Jane with him. After a shootout on the roof of the building, Hapsburg informs Frank that he has rigged the building with a small nuclear device which will kill everyone in there except for him and render Dr. Meinheimer's speech useless. After a fight, Frank attempts to learn the bomb's disarming code from Hapsburg, but Ed enters and throws Hapsburg out a window. Hapsburg hits an awning below and is able to come to the sidewalk unscathed, but is immediately killed by an escaped lion from the zoo.
Frank frees Jane from being handcuffed to the bomb, and they attempt to disarm it while Ed and Nordberg go back into the ballroom to evacuate it. After several failed attempts, Frank finally manages to disarm the bomb at the last second by tripping over the power cord, unplugging it. Frank is commended by the President, who offers him a special post as head of the Federal Bureau of Police Squad. Frank declines, instead asking Jane to marry him, which she accepts.
As with the first Naked Gun film, the original music for the second installment was composed and orchestrated by veteran soundtrack composer Ira Newborn, including the familiar big-band/blues theme for the Naked Gun/Police Squad! franchise.
Several of the orchestral movements revolve around two other Newborn pieces: "Drebin - Hero!" (used at the top of the pre-credit sequence, from the Paramount-logo animation onward) and the romantic "Thinking of Him" (right after the credits).
Seasoned Broadway and film singer/actress Colleen Fitzpatrick plays a saloon singer at a sad-sack restaurant called the Blue Note, to which a depressed Detective Lieutenant Drebin repairs after seeing former girlfriend Jane Spencer being wooed by villain Quentin Hapsburg. This role has frequently been attributed to singer Vitamin C who happens to share the same name, but this is incorrect.
Other non-Newborn pieces make cameos in this Naked Gun installment. They include the standards "Tangerine" and "Satin Doll" and The Righteous Brothers' recordings of "Unchained Melody" (featured in Jerry Zucker's drama Ghost) and "Ebb Tide." Nielsen himself voices the Latin-flavored pop standard "Bésame Mucho" at the Press Club dinner.
In conjunction with the second Naked Gun film, Varèse Sarabande released a soundtrack combining the best Newborn compositions from the first two films.Track listing
The Naked Gun 2½: The Smell of Fear was met with mixed reviews from critics. The film currently holds a 57% "Rotten" rating on Rotten Tomatoes, based on 40 reviews, with an average rating of 5.8/10, with the critical consensus stating, "Naked Gun 2½: The Smell of Fear delivers a handful of moderate laughs, but overall, its strained antics pale in comparison to its gut-busting predecessor.". Owen Gleiberman of Entertainment Weekly awarded it a B+, but observed that in some ways, it was "the most predictable of the ZAZ films. Even the inconsistent Top Secret! (1984), a demented hybrid of Elvis movies and World War II espionage thrillers, had far wilder passages. Yet I'll take lesser ZAZ over most of the competition any day. Their comedies don't just get you laughing. They put you inside a new, cracked-mirror world — a world where no detail is too small for ridicule, and where Leslie Nielsen (bless him) can be a movie star." Kenneth Turan wrote in the Los Angeles Times that one should "consider The Naked Gun 2½: The Smell of Fear. The title is funny enough, so are the credits ("Un Film de David Zucker"), and the key art, showing fearless Lt. Frank Drebin spread-eagled on a pair of speeding bullets, is good for a chuckle as well. But that's where the laughter ends, pal. Because the only thing about The Naked Gun that won't make you laugh is the film itself."
The Naked Gun 2½: The Smell of Fear knocked Robin Hood: Prince of Thieves from the top spot at the box office. It took in $86.9 million in its 1991 domestic release ($179 million in 2015 dollars adjusted for inflation) against a reported budget of $23 million. It was the 10th best performing movie of 1991.