Two years have passed since the King of the Iron Fist Tournament. On a stormy night, a lone figure fights his way up a rocky cliff until he reaches the top.

The Mishima Zaibatsu, under the leadership of Kazuya Mishima, has become even more corrupt and powerful than ever before, as well as becoming involved in many illegal operations. These include kidnapping, extortion, smuggling of endangered species for illegal experiments, and blackmail. Unknown to everyone, Kazuya is being backed up by a mysterious force known as Devil, who inhabits Kazuya's body and serves as his only counsel.

 

Kazuya's activities have made enemies for him from all corners of the world, one of which is Jun Kazama, an animal rights fundamentalist. Kazuya's biggest problem, however, is when news reaches his ears that his father, Heihachi Mishima (whom he defeated two years ago in the first King of the Iron Fist Tournament) is alive and plotting revenge against him. In an attempt to rid himself of Heihachi and his enemies once and for all, Kazuya announces the King of the Iron Fist Tournament 2, with a cash prize one thousand times the first (one trillion dollars).

Jun Kazama eventually comes face to face with Kazuya, but rather than arresting him, she finds herself drawn to him (due to Devil's powers). She later ends up pregnant, with Kazuya being the father. In the confusion, she departs from the tournament.

In the final round, Heihachi confronts Kazuya, and they battle once again. Heihachi wins the first round, prompting Devil to take over Kazuya's body and unleash his full power. This results with Kazuya becoming a Devil-like creature. Despite his advantages, Devil is still defeated by Heihachi, and flees the unconscious body of Kazuya.

After the tournament, Devil attempts to inhabit the body of Jun's unborn son, but Jun manages to fight him off. Heihachi, meanwhile, takes Kazuya's body to a volcano, and drops him in. Heihachi then escapes on a helicopter as the volcano erupts behind him, having finally taken his revenge and regained his company.