Many years after the first film, Charlie B. Barkin remains in Heaven as an angel and waits for the new dogs to arrive in Heaven one of whom is Charlie's best friend Itchy Itchiford who died while choking to death on a chicken drumstick. Charlie welcomes Itchy into heaven and shows him around but reveals that he's been bored in Heaven since his death ("It's Too Heavenly Here") and wishes to return to Earth. Then Charlie's old nemesis Carface secretly steals Gabriel's horn and causes it to fall from Heaven to Earth to which Carface secretly escapes from Heaven to Earth also. Annabelle the Head Angel sends Charlie and Itchy to Earth to retrieve the horn and gives them 1 Miracle to use while on Earth.
Once on Earth Charlie and Itchy arrive in San Francisco and Charlie begins exploring a dog tavern where he notices a singing Irish Sitter dog named Sasha La Fleur and falls in love with her. He tries to get her to notice him but she can't see nor hear him because he's a Ghost. Then Charlie spots Carface with a red collar around his neck that makes him visible to which he tells them he got the collar from a dog named Red who would probably be happy give some to Charlie and Itchy as well to which they follow him to Red's place who Carface introduces them to and Red gives them each a collar making them both visible but tells them the collars will only work until sundown tomorrow and then they will be Ghosts again. After Charlie and Itchy leave it is revealed that Red is actaully a powerful demonic devil cat disguised as a dog and hired Carface to steal Gabriel's horn so he could imprison all dogs from heaven and rule the world.
Charlie and Itchy go back to the tavern and introduce themselves to Sasha who takes them to her home and shows them a little boy named David who's runaway from home. Charlie and Itchy ask them to help them find Gabriel's Horn goes back to Heaven. Upon seeing the horn being taken into a police station, they retrieve it, with Carface failing to steal it from them. Reluctant to return to Heaven, Charlie conceals it in a lobster trap. On Easy Street, they entertain an audience with magic tricks, but a rainstorm and David tumbling into a fountain ruins the act. He thereafter reveals his belief that his father and stepmother, who is expecting a new baby, will care less for him once it's born; but is persuaded otherwise by Charlie. As he and Sasha embrace, his collar vanishes, and he and Itchy become ghosts again.
Determined to fulfill his promise to accompany David home, Charlie approaches Red, who presses him to give him the horn, with Carface kidnapping David and demanding that Charlie bring Red the horn to Alcatraz Island in exchange for David's life. He does so, and Red uses it to capture Heaven's canine angels and send them to Earth in the prison cells, including Anabelle; whereupon Charlie, Itchy, Sasha, and David fight Red and recover the horn, which Charlie plays to free the angels and send Red to Hell. Carface comes out of hiding and attempts to downplay his involvement. However, he does offer a genuine apology hoping to finally make amends with Charlie but Red drags him into Hell after himself, which reveals to everyone that Carface sold his soul to him in exchange for his collar.
Charlie gives the horn back to Anabelle in exchange for his life and says goodbye to Itchy, who decides to remain in Heaven. After he reunites with Sasha and David, they head to the latter's house where he returns and reunites with his parents. His stepmother is happy that he is all right and explains she has been worried sick and says just because she is pregnant meaning she does love him and that they are a family. They then adopt Charlie and Sasha, before enjoying their new life together.
- Wallace Shawn as Labrador M.C.
- It's Too Heavenly Here
- Count Me Out
- It Feels So Good to Be Bad
- On Easy Street
- I Will Always Be with You
This is the first time Charlie, or any of the dogs, speaks to a human adult, the second time being the episode "Fearless Fido," but not really including "Charlie the Human."