Toy Story 2 starts off with a shooting star heading through space. It's then revealed it's not a shooting star at all, but is in fact Buzz Lightyear, intergalactic Space ranger. He lands down on an alien planet, to find himself soon swarmed upon by man robots. He pulls a few manoeuvres and manages to blow them all up with a laser beam from his wrist. He then finds the floor of the planet opening up. He falls inside and turns on a light on his utility belt to lead the way through a small corridor. The lights then flick on and he finds himself being pursued by a metal wall with spikes sticking out. He dives through a closing door at the last second. Buzz then makes his way across a floating disc bridge, only to have it fall half way. He makes quick use of his utility belt and flies up to the next platform. This is where he finds Zurg's energy source. However, it turns out to be a trap and he does battle with Zurg. Soon, however, Zurg manages to disintegrate Buzz and Zurg laughs evilly.
It turns out that Rex was infact playing the Buzz Lightyear video game, however, he has problems due to his stubby arms. Meanwhile, Woody is searching Andy's room for his hat. Slinky returns from downstairs with it. When Woody asks where he found it, it's revealed he found it in Buster's basket (Buster is Andy's dog which he received at the end of the first film). Woody runs off to hide w hen Buster comes running up the stairs. Buster ransacks the room looking for Woody. Eventually, he finds him and delivers playful licks. Andy then returns to this room and everyone takes positions. Andy's soon to be heading off to Cowboy camp with Woody. Both Woody and Andy are looking forward to it. Andy sets up a sce ne with his toys in the short time he has between then and leaving. Accidentally, he tears Woody's arm. Woody is then shelved and left behind as Andy goes off to Cowboy camp.
While depressed on the shelve, Woody finds an old friend, Wheezy, who everyone thought was sent off to get fixed. In reality, he too had been shelved. That's when Andy's mom comes in and starts collecting old toys from Andy's room for a garage sale. None of the living toys are taken, until Andy's mom comes across Wheezy and takes him too . Woody, however, has other plans. He rides Buster out into the garage sale without a word to the other toys. They think he's on a suicide mission, but they soon realise he's on a rescue mission. It all goes wrong though, when a valuable toy collector, Al, finds Woody. Desperate for Woody, he steals him and drives off, despite Buzz's efforts to save Woody. Woody soon finds himself in an apartment building on one of the top floors. This is where he meets, Jesse, Bullseye and Stinky Pete the Prospector. As it turns out, Woody is actually a valuable toy based on an old T.V show called 'Woody's round-up'. The 4 are meant to be sent off to Japan to be put behind glass for the world to look at. Woody however doesn't want to be. Al gets Woody fixed by a professional, then puts them away in their case.
Meanwhile, Buzz is figuring out who kidnapped Woody, by decoding the license plate on the car. They soon discover he's Al, from Al's Toy Barn. They make their way there over night and sneak into the shop, where they hide until closing. It's during this time, however, that Buzz runs into another model of himself, who believes that Buzz has escaped his packaging. Alternate Buzz wraps Buzz up and puts him in amongst the rest of the Buzz Lightyears. The rest of the toys, come across Alt Buzz and believe him to be their own.
They then realise after Al leaves that his apartment is right across the street. In their haste to get out of the store and across the road, they accidentally let a Zurg action figure out of his case, who then chases down the toys. Real Buzz then manages to break out of his packaging and follows suit. The toys are going up on an elevator to find Woody, when Zurg ambushes them. Alt Buzz and Zurg have a showdown, which results in Zurg, who turns out to be Alt Buzz's father, falling down the elevator shaft.
Real Buzz manages to catch up to the toys and they rendezvous with Woody. Woody is about to leave when he decides to ask Jessie and the gang to join them. While this is going on, Stinky Pete locks the vent grate with his pickaxe, as he is adamant about going to Japan and getting locked in the glass case. Al then returns and packs the toys away and sets off to the airport. The rest of the toys make their way back to the ground floor, where Alt Buzz leaves the group to spend time with his father, who survived his fall.
The toys commandeer a Pizza Planet truck and manage to drive to t he airport and catch up Woody and the round-up gang in the suitcase area. They Buzz and Woody fight Stinky Pete for their freedom, with Woody's arm getting ripped again in the process. The toys beat Stinky Pete and stick him in a little girl's bag with a Barbie. Before Jessie manages to get out of her packaging, she falls back in and the box slides down the ramp to the suitcase carrier. Jessie is put onto the plane and feels that hope is lost, until Woody and Buzz ride up on Bullseye and save her from the plane just before it takes off.
They all go back to the house and Andy returns. To his surprise, he finds he has new toys, (Jessie and Bullseye). Wheezy gets his squeaker fixed and Andy manages to fix Woody all by himself. Rex is then watching the T.V when he sees an advert for Al's Toy Barn with a very unhappy Al. Woody and Buzz realise that soon Andy will grow up and cease to play with them anymore, but they will always have eachother. Wheezy sings them out with 'You've got a friend in me'.