Three years after the first film, Stuart (voiced by Michael J. Fox) questions his ability after a grueling soccer match alongside George (Jonathan Lipnicki), who kicked him with a soccer ball. He becomes even more downhearted after George's model airplane gets broken in an accident because of him. However, Stuart's father, Frederick Little (Hugh Laurie), tells him that for every Little, there is a "silver lining", a good thing that comes out of an apparently bad situation.
On his way home from school, Stuart saves a canary named Margalo (voiced by Melanie Griffith) from a peregrine falcon named Falcon (voiced by James Woods), and they become friends. However, Margalo is secretly assisting Falcon to steal from households after earning the homeowners' trust. When he tells her to find and take an object of value, or lose the sanctuary he promised her, she can't seem to concentrate on her assignment, as she is beginning to fall in love with Stuart.
Falcon eventually loses patience and threatens to eat Stuart if Margalo doesn't give him the ring. Worried for his safety, she takes Eleanor Little's (Geena Davis) wedding ring.
When the Littles see that the ring is missing, they think it has fallen down the sink drain. Stuart offers to be lowered down the drain on a string to get it, but is unable to retrieve it after the string breaks. A guilty Margalo saves him, then leaves the Little house the following night after overhearing Frederick and Eleanor talk about Stuart's safety. Upon realizing Margalo's disappearance, Stuart assumes she has been kidnapped by Falcon and leaves to rescue her with the household's reluctant cat Snowbell (voiced by Nathan Lane).
After Stuart's car breaks down, Stuart and Snowbell enlist the help of Monty (voiced by Steve Zahn), Snowbell's old friend from the first film, who tells them that Falcon's headquarters is at the disused observation deck of the nearby Pishkin Building. They attach a balloon to a popcorn box to get Stuart to the top, where he finds out that Margalo is Falcon's slave and was forced to take the ring. Stuart tries to save her, but Falcon captures him and drops him onto the street. He is accidentally saved by a passing garbage truck, unbeknownst to either Falcon and Margalo.
Falcon then shuts Margalo inside a paint can as punishment for rebelling against him. Meanwhile, Snowbell makes his way to the top of the building while the Falcon is absent and frees Margalo, who tearfully tells Snowbell that Falcon killed Stuart. Distraught and outraged, Snowbell vows revenge.
On a garbage barge where he has ended up, Stuart blames himself for everything and almost loses hope before finding George's broken model airplane. Realizing this is a "silver lining", he fixes it and uses it to fly back to the Pishkin Building to save Margalo. Meanwhile, as Snowbell frees Margalo, Falcon returns and tries to kill Snowbell, but Margalo distracts him by taking the ring and fleeing, allowing Falcon to give chase. Stuart catches up in the plane and saves Margalo. The Littles, who have discovered his absence and whereabouts, punish George for not telling them where his brother is. Then they follow Stuart in a taxi as he begins flying through the park, with Falcon tricking him into giving the ring back.
Eventually, Falcon grabs the plane and detaches the upper wing, causing it to enter a steep nose dive, but Stuart recovers from the dive. Realizing that Falcon will never give up, Stuart lets Margalo off, then flies the plane in a kamikaze run while Falcon goes into an attack dive. He uses Eleanor's ring to temporarily blind him and jumps out using a bandana as a parachute, leaving Falcon to be struck by the plane, which bumps into him and breaks. Stuart falls when his parachute is sliced apart by the plane's propeller, but is rescued by Margalo. Although Falcon survives being struck, he is injured and falls out of the sky, landing in a garbage can next to Monty, who apparently eats him.
Stuart is congratulated by his family, and Margalo gives Eleanor her ring back. After George tells Frederick he is sorry for lying, they reconcile as Snowbell reunites with them as well. Sometime later, Margalo says goodbye to the Littles and leaves with the other birds to migrate south for the winter. When Frederick asks Stuart what the "silver lining" of this event is, he responds that Margalo will be back in the spring. Martha Little, the newest member of the family, says her first words: "Bye bye, birdie." The family celebrates the occasion before heading into the comfort of their home and Snowbell, downhearted, says that when Margalo can fall out of a tree and land on her feet, then he'll be impressed.
- Geena Davis as Eleanor Little
- Hugh Laurie as Frederick Little
- Jonathan Lipnicki as George Little
- Anna and Ashley Hoelck as Martha Little
- Marc John Jefferies as Will
- Jim Doughan as the football coach
- Brad Garrett as Rob, the plumber
- Amelia Marshall as Rita, Will's mom
- Michael J. Fox as Stuart Little
- Nathan Lane as Snowbell
- Melanie Griffith as Margalo
- James Woods as Falcon
- Steve Zahn as Monty