The sequel takes place approximately six months after the events of the first movie. Rachel Keller (Naomi Watts) and her son Aidan (David Dorfman) have moved from Seattle to the quiet coastal community of Astoria, Oregon. Rachel begins a new job at the Daily Astorian, a local newspaper, working for Max Rourke (Simon Baker).
Before long, there is news of a teenage homicide in town. The details surrounding it sound all too familiar to Rachel, who decides to investigate. She finds the corpse of Jake, a young man who has watched the cursed videotape. Nearby is Jake's friend Emily, who is alive but badly traumatized by Samara Morgan's attack. Rachel finds that Jake's face, like that of the other victims, has an expression of horror. As Rachel is about to leave, an apparition of Samara reaches out to Rachel, saying "I found you" before disappearing.
Rachel finds and destroys the tape. At the exact same time, the television at Rachel's house turns on to the last scene of the tape (the well in which Samara was pushed), and Samara appears to Aidan. She drags him into the television and after that Aiden wakes up. He starts to develop hypothermia, and is covered with bruises. Later, Rachel's house shakes and rattles in a manner similar to a poltergeist. At a local fair, Aidan can see Samara in a mirror, drawing closer and he takes photos of himself where Samara is visible. As they leave the fair, the car is repeatedly attacked by deer, almost killing them, that are drawn for some reason to Aidan.
They return home and while Rachel is talking on the phone with a doctor the electricity runs out. Rachel goes upstairs to Aiden and sees Samara in the corner. She runs to Aidens bed, but he's not there, he is standing in the corner. Rachel takes him away from there and after that a form of a tree is burned in the walls. They come to Rachel's office and meet Max. Rachel tells him that Aiden is sick and asks if they could come to his house, he agrees. There she puts Aiden in a bath to rise his temperature and goes back to the house to pick up some stuff. When she returns the bathroom door is locked. After Max leaves, to get something to open the door with, it opens. Rachel walks in and sees that the water is everywhere (even on the ceiling) and Samara is holding Aiden. She drags him away from her and all the water falls down. Rachel tries to draw Aiden out of the water, but draws out Samara. Rachel drowns her, but when Max returns it's again Aidan and he thinks that Rachel tried to drown her son.
Aidan is hospitalized. The staff, particularly psychiatrist Dr. Emma Temple (Elizabeth Perkins), suspect Munchausen by proxy on Rachel's part and won't allow her to be near him. Desperate for answers, Rachel travels to Seattle to dig deeper into Samara's past and origins. She discovers that Samara was not Richard and Anna Morgan's biological child (confirming her strong suspicions in the first movie). She tracks down Samara's birth mother, Evelyn (Sissy Spacek) (she had her daughter when she was sixteen years old, and is currently forty-six at the time of the scene), who tried to drown Samara as an infant and has been living in a mental institution ever since. Meanwhile, Dr. Temple meets with Aidan, who is behaving very differently, possessed by Samara. When Dr. Temple refuses to let Aidan see Rachel, he/Samara inflicts a psychic assault on her resulting Dr. Temple grabbing an empty syringe and injecting air into her veins, thus killing herself by gas embolism.
Evelyn insists that Samara had no father, other than an entity from the sea (a likely nod to the original Japanese Ring) and advises Rachel to "be a good mother" and "listen to her baby" when she seeks advice on how to deal with Samara. Rachel drives back home, only to find that Max's car is outside of her home. She walks in, and Aidan hugs her from behind, scaring her. Rachel looks to the side, seeing that Max's coat is on the chair. Rachel starts to suspect something, and tells Aidan that she needs something in the car. Rachel then goes outside, only to see that Max's car is still parked outside. She walks up and opens the door, discovering then that he had been killed in the same way that the other victims have been. Rachel then goes inside, into her room, and tries to sleep. Rachel and Aidan learn that Samara can't hear them when they're sleeping, so they communicate in dreams, although viewers are never quite told how this is possible. In any case, Aidan tells Rachel, in a dream, what she must do. In order to stop Samara, Rachel must drown Aidan.
Rachel goes back into the living room, only to find Aidan still sitting there. She tells Aidan that he should go to sleep. Aidan tells her that he never sleeps. She suggests that she make him something to eat. Rachel goes into the kitchen, preparing two peanut butter and jelly sandwiches. On one sandwich, she puts sleeping medication, intended to make Aidan unconscious. She walks back into the living room, and sits down next to Aidan. Soon, Aidan falls asleep.
Rachel goes upstairs, turning the water on in the bathroom. Rachel holds an unconscious Aidan underwater. Samara's spirit leaves and Rachel is able to revive him. However, Samara attempts to re-enter through the TV set, via the well from the videotape. Against Aidan's wishes, Rachel grabs onto Samara as she is emerging, and is pulled into Samara's well. Rachel begins climbing out, pursued by Samara, who emerges from the water below and also ascends, scaling the stones in a very inhuman fashion. Rachel is able to get out barely ahead of Samara, who is calling out to Rachel as if she were her mother. Rachel replies that she's not her mother and then closes the lid, sealing Samara in. Rachel then wanders the bleak, almost monochromatic world of Samara's video trying to find an exit.
She hears Aidan's voice and walks toward it, only to come to the cliff where Anna jumped to her death. She heard Aidan calling her name below. Determined to follow Aidan's voice, and accepting her own death, Rachel jumps off the cliff and ends up back in her living room with Aidan, without Samara. The film ends with the notion that Rachel and Aidan have survived Samara once again.
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