The plot is picking up where the previous film left off. After the evil Snow Queen was defeated and frozen solid, Dimly the flying reindeer arrives back at the village with Ellie, her brother Tom, and Peeps the sparrow. By now it is almost spring. Back at the Queen's palace, her now uncontrolled three trolls, Eric, Baggy and Wardrobe, prepare for Dimly to take Freda back to the flying school and return for the trolls. As the trolls try to figure out where to go, the Snow Queen's bats take her magic staff and place it in her hand, setting her free moments after Dimly returns. The furious Queen decides to kidnap Dimly so Ellie will come to her and she can get her revenge. She moves with Dimly and the trolls to the South Pole, as it is now too warm in the North Pole.
The Snow Queen contacts Ellie, telling her that she has captured Dimly and daring her to rescue him. Ellie does not know where the Queen is now, so Peeps takes her to Brenda, a bird that is said to know everything. Meanwhile, the Queen reaches her palace set on a frozen volcano and locks Dimly away in a cell next to her ferocious reindeer, which attempt to break into his cell and eat him. Brenda takes Ellie and Peeps toward the South Pole. They stop at a restaurant for food, where the proprietor (a greedy humanoid pig) and her minions capture Brenda and try to cook her to serve as food. Ellie and Peeps stop them and escape, destroying the restaurant.
The Snow Queen begins work on the final part of her plan, creating the Iceosaurus, an ice pterodactyl. Meanwhile, Ellie falls asleep and she and Peeps fall off Brenda and into the ocean, where they are picked up by a humanoid walrus, Clive and his partner Rowena, on a ship named the S.S. Quagmire. When Ellie and Peeps describe how they are on their way to the Queen's palace, they realize that she set the whole thing up to lure Ellie there. Clive and Rowena are revealed to be bounty hunters who plan to give Ellie to the Queen for a big reward, and imprison her and Peeps. When Brenda realizes that they have fallen off, she comes back and rescues them.
Brenda, Ellie, and Peeps arrive at the South Pole, but the Iceosaurus freezes Brenda. Ellie and Peeps discover a magic talisman that turns into a salt shaker which Ellie uses to unfreeze Brenda. Brenda separates from Ellie to find a high place to take off. Ellie and Peeps encounter Pearl and Elspeth, two humanoid penguins who clean the palace for the Snow Queen, and Ellie traps them inside a bubble using the device. They find Dimly and release him from his cell by turning the device into a key, and locking the Queen's reindeer inside. The group attempts to escape, but Dimly is too weak to fly at the moment. The Queen and the Iceosaurus attack them, but Freda's device turns into a kind of shield that Ellie uses to deflect the ice beams the Queen shoots at her, causing one to hit the Iceosaurus. It falls and crashes into the ground, creating a massive volcanic eruption. Brenda escapes the flood of lava and gets Ellie, Peeps, and Dimly to safety. The panicked Snow Queen attempts to flee on feet, but is unable to escape her crumbling palace and falls down into the lava.
As Brenda takes Ellie, Peeps, and Dimly back home, Eric, Baggy, Wardrobe, Pearl, and Elspeth watch as the Snow Queen's castle is destroyed, and walk off once the eruption is over. The final scene shows the Queen drifting through the river of molten magma, her body semingly intact but now turned to stone, and still holding her magic staff. Her eyes glow onimously before the credits roll.
Musical numbers: Cooperation; Queen Of Cold; Penguins Of The Palace; She Is Your Bird; Cooking The Masterpiece; S.S. Quagmire;Julia McKenzie as the Snow Queen, Freda and Proprietor
Ellie Beaven as Ellie
Gary Martin as Dimly
Hugh Laurie as Peeps
Elizabeth Spriggs as Brenda
Tim Healy as Eric
Colin Marsh as Baggy
Russell Floyd as Wardrobe
Patrick Barlow as Clive
Imelda Staunton as Rowena and Elspeth
Alison Steadman as Pearl
The Snow Queen's Revenge was released on the DVD by UCA Catalogue in 2004, and then together as a double-pack in 2005. Previously, the film was also released separately on the VHS by First Independent Films in 1997 and by Warner Brothers Feature Animation in 1998.