Ten years after the first film, Dr. Arthur Neuman (Ben Stein) is giving a tour of the hall of Norse mythology in Edge City Museum. A man in black comes in to view the hall. When Dr. Neuman reaches the part concerning Loki's imprisonment, Dr. Neuman mentions that Loki created the mask and unleashed it on Earth. Those who wear the mask would have the powers of Loki. When Dr. Neuman mentions that Odin punished Loki with imprisonment, a stranger becomes very angry and transforms, revealing himself to be Loki (Alan Cumming). The tourists panic and flee, but Dr. Neuman stays to argue with the angry god. Loki takes the mask, but realizes it is a fake. In anger he removes Dr. Neuman's still talking face from his body and puts it on the mask stand, before getting rid of the guards and storming out of the museum in a whirlwind of rage.
In a town called Fringe City, Tim Avery (Jamie Kennedy), an aspiring cartoonist at an animation company, is feeling reluctant to become a father. He has a beautiful wife, Tonya (Traylor Howard), and a best friend, Jorge (Kal Penn), who is very shy around women. Tim has a close relationship with his dog Otis ("Bear"), who finds an ancient mask in a creek and brings it to his owner's house. At the island, Loki was relaxing until Odin confronts him and orders his son to find the mask. Loki asks Odin to help him, however, Odin tells Loki that this is his mess and he has to clean it up. Tim puts on the real mask for a Halloween party, transforming into a party animal similar to the mask character from the first film. Tim notices Jorge's crush, Sylvia, standing alone in the back; eagerly confronts her and has her stripped out of her costume and into a skimpy red suit. Sylvia falls into Jorge's arms, which pleases them both. When the company party turns out to be a bore, Tim uses his mask powers to perform a remix of "Can't Take My Eyes Off You", making the party a success, and giving Tim's boss the idea for a new cartoon.
Tim returns to his house and, while still wearing the mask conceives a baby. The baby, when he is born, has the same powers as Loki. Meanwhile, Loki is trying to find the child born from the mask, from his father Odin (Bob Hoskins) possessing a store clerk, saying if he finds the child, he will find the mask. Later, Tonya goes on a business trip, leaving Tim with the baby. Tim, who has been promoted at work, desperately tries to work on his cartoon at home, but is disrupted by baby Alvey. In order to get some peace and quiet, Tim lets Alvey watch TV, which shows Michigan J. Frog. Alvey devilishly obtains the idea to mess with his father's head by using his mask powers. Meanwhile, Otis the dog, who has been feeling neglected by Tim because of Alvey, dons the mask by accident and becomes a crazed animal version of himself, who wishes to get rid of the baby but all his attempts are overturned by Alvey. Tim starts to notice his son and dog's wild cartoonish behavior, when Alvey starts harassing him.
Eventually, Loki finds the mask-born baby, and confronts Tim for the mask back, and is thwarted again and again by Alvey who uses the power of the Mask. Loki then kidnaps Alvey to exchange for the mask, but decides to keep him despite the exchange, forcing Tim to don the mask again to fight Loki. The subsequent confrontation is relatively evenly matched due to Loki and Tim-in-the-Mask possessing equal powers, prompting Loki to halt the fight so that Alvey can decide who he wants to live with. Although Loki tries to lure Alvey to him with toys, Tim wins when he removes the mask and asks Alvey to come back to him using the human connection he has forged with his son. Odin loses his patience and begins to banish Loki, but Tim confronts the powerful Norse god and tells him that the most important thing in life is a relationship with your family, and Odin accepts Loki as a son, accepting the mask from Tim as well. Tim's cartoon, based on his own experiences of a boy and a dog competing for the father's attention, is a hit, and Tonya reveals that she is pregnant again before the film closes.
- Jamie Kennedy as Tim Avery
- Alan Cumming as Loki, God of Mischief
- Traylor Howard as Tonya Avery
- Kal Penn as Jorge
- Steven Wright as Daniel Moss
- Bob Hoskins as Odin
- Ben Stein as Dr. Arthur Neuman
- Magda Szubanski as Betty
- Sandy Winton as Chris
- Rebecca Massey as Clare
- Ryan Johnson as Chad
- Victoria Thaine as Sylvia
- Duncan Young as Mansion Doorman
- Peter Flett as Mr. Kemperbee
- Amanda Smyth as Mrs. Babcock
- Ryan and Liam Falconer as Alvey Avery