Five years after the events of the first film, in the opening of the film, Boobusters is closed. They were sued by the Mushroom Kingdom and served a judicial restraining order preventing them from conducting paranormal investigations and eliminations sometime after The Shadow Queen was defeated. Daisy Sarasa is making her way with her baby Tuxie back to her apartment. While talking to the superintendent, slime on the wheels of Tuxie's stroller cause it to roll away, weaving around oncoming traffic and people. Daisy chases after it, and eventually it stops in the middle of the intersection, right in front of a City Bus. As for the Boobusters, they are undeservingly out of business, having been sued by the city for property damage and because of a restraining order, are barred from paranormal investigations. Boonie the Boo and Toad Toadson are regular entertainers at children's birthday parties although they are usually greeted with jeers and hostility from the children. Daisy visits Proffesor Elvin Gadd at his lab office, where he is conducting various experiments on human emotions, and explains to him what happened earlier and that she needs help. He tells her he would like to get Boonie involved and Daisy agrees but tells him not to involve Luigi Mario, as they are not on good speaking terms. In the meantime, Luigi is the host of "The World of the Psychic", a television show that, unfortunately, is avoided by renowned psychics stemming from the belief that Luigi is a fraud. After the show, he runs into thPrincess Peach and tries to talk to him but is stopped by Toadsworth, the Princess' assistant. He tells him to keep away from the Princess. They instantly dislike one another and Luigi reminds him of how "bookworms" like himself earned him and his fellow Boobusters their public status and reputation.
Dana is working at Mushroom City Museum of Art, restoring paintings and having to deal with the unwelcome advancements from her boss, Bowser Jr. While Boonie and E. Gadd are researching at Boonie's Occult Books, Luigi shows up and finds out about Daisy's recent problem. The next day, the three visit her apartment, prompting an awkward reunion between her and Luigi. E. Gadd and Boonie examine Tuxie and his room, then investigate the street where the stroller stopped. After checking the area and getting a strong reading, they drill a hole in the street. They discover a deep shaft and conclude that one of them must descend to obtain a better reading. Meanwhile, at the art museum, Bowser Jr. is touching up the painting of 15th-century Magakoopa tyrant Vigo the Koopathian when he receives a shock from it. The painting changes and Vigo orders him to locate a child, possessing him with the evil power.
Boonie, meanwhile, is going down through the street in the underground by wire. While the police show up to tell them that the gas leak story they gave doesn't check out, Boonie finds out that there is a river of slime flowing under Mushroom City. After obtaining a sample, the slime starts attacking him, and he screams begging them to pull him up. In the panic, Boonie hits a pipe and the power to all of Mushroom City goes out. Bowser Jr. goes to Daisy's apartment to see if he can get her baby, but is turned down.
The next day, Luigi, Boonie and E. Gadd are put on trial for violating their restraining order. They are poorly defended by Russ T. and are found guilty. However, when Judge Wexler Koopa begins angrily insulting the trio, the slime starts boiling and after a final tirade, the smile explodes, releasing the ghosts of two murderers the judge had executed. Wexler begs for the Boobusters to do something, dismissing the charges and rescinding the restraining order. They then successfully capture the two ghosts. They reopen their business of investigating the paranormal. During this, Boonie and E. Gadd find the slime all over the city.
The Boobusters had started researching and experimenting on what Luigi called "Mood slime". It was shown that the slime reacts to threats and verbal abuse, however it also reacts to singing as they did a toast with a toaster where it would dance to the music. Luigi then goes to the museum of art to visit Daisy and while there Daisy tells him about how it feels like the painting is watching her, which also they together notice Bowser Jr. is talking to the painting. Later that night while preparing Tuxie to take a bath the bathtub filled with pink slime attacks. She runs with Tuxie and goes to Luigi's apartment and after telling Luigi what happened, Luigi calls Boonie and E. Gadd at the Firehouse, and they agreed to go to Daisy's apartment. E. Gadd also showed him history on Vigo and they also decided to go look at that painting the next day as well.
The next day they head on in to the Art Museum and against Bowser Jr.'s wishes photograph, and study the Vigo Painting. Later, Luigi comes home to find Daisy cleaned his apartment. He asks her out on a night on the town, and she says yes. Meanwhile after closing the Firehouse for the day, Russ T. asks Joline out for a bite to eat. She says that she can't as she's babysitting Tuxie for Luigi, however she invited him to come over at 8pm. He says yes. Meanwhile, E. Gadd and Boonie are looking over the pictures using the Spectral analyzer and they noticed not only is a living presence but the River of Slime. After that, the whole room caught on fire, but Toad came in and extinguished the fire.
E. Gadd, Boonie, and Toad meet up with Luigi, and Daisy and ask him to join them as they go down in the sewers to look for slime. Luigi says no so the three go down there. While down there they see impaled heads, and a Ghost Train which goes through Toad. Finally they find the River of Slime. E. Gadd and Boonie talk about how the thriving undergrond rat population is increasing; much like the sponge migration from 1996. A sign of high, paranormal activities, to which Toad is dismayed. (see: "the Twinkie") Toad tries to measure how deep it is when the slime pulls him in, and he goes downriver. Boonie and E. Gadd jump in after him. Meanwhile Daisy and Luigi seem to be patching things up in there relationship at the restaurant and Joline and Russ T. are enjoying the time together at Luigi's apartment. Later on Boonie, Toad, and E. Gadd get out of the sewers all covered in slime and fighting. E. Gadd tells them to remove the clothes they are wearing, and then they lost they anger towards each other. They then look to find out that the River of Slime flows to the Art Museum.
The Boobusters come into Saffron's Restaurant where Luigi and Daisywere enjoying dinner. Noting that they were in they underwear and covered in slime the restaurant manager called the cops as the guys told Luigi and Daisy about the river of slime and the events. The cops take them away, and Luigi goes along with them. Meanwhile, Daisy comes to Luigi's place to see how Tuxie is doing as the date is over. Joline and Russ T. were caught asleep on a couch together, however Tuxie is fine in bed. Meanwhile, the Boobusters meet Princess Peach at her castle and Toadsworth is there: being a jerk. The Boobusters try to convince Peach that the negativity of the city is making a River of Slime, and if people don't start being more positive the whole city is going to blow with supernatural activity. Peach didn't believe them and says being miserable and treating people like dirt is every Citizen's God-given right. After the Princess left, the Boobusters talked about going to the press with the story, then Toadsworth suggested to first tell the people down town. What Toadsworth didn't tell them was that the people down town work for the Pipeview Psychiatric Hospital, an insane asylum.
Meanwhile Vigo is talking to Bowser Jr. and a deal is struck that Vigo would be reborn as the baby for Daisy and Daisy would be Bowser Jr.'s wife. Meanwhile, at Luigi's apartment Russ T., Joline, and Daisy are watching a movie, when all the sudden a window in the bedroom opens and Tuxie walks out onto the buildings ledge. Daisy notices and sees the window up. She sees Tuxie as a supernaturally powered Bowser Jr. takes him. Daisy leaves for the art museum while Russ T. looks for the guys.
Daisy gets to the museum which after entering the whole outside covers in slime. Inside, Daisy tries to take back Tuxie while Bowser Jr. starts telling the plans Vigo has. After that, beneath the city, the slime raises causing massive mayhem as ghosts and monsters randomly pop out and terrorize citizens. Princess Peach getting desperate says to call the Boobusters, which at that point Toadsworth tells him that he had them committed. The princess then fires Toadswoth and sends someone to get the Boobusters, and at that point a slime eclipse happens outside.
After that Russ T. is with the Boobusters as they are leaving and Booney is explaining that Vigo is going to take Tuxie and become reborn in Tuxie's body and they need to stop it. Then a few minutes later the Boobusters get to the museum. They try to blast open the through the slime on the museum, but it's too strong. The boys then get a idea that they need a positive symbol to lift the spirits of the people in the city. Then they get to the Statue of Mario and Booney and Toad spray down the inside with the Slime Throwers and E. Gadd sets up an NES Advantage controller to steer the Statue. They then started to play "Your Love Keeps Lifting Me Higher" over the speakers in the Statue. The Statue then started walking and went through the bay.
Meanwhile, back at the firehouse Joline dresses up Russ T. in E. Gadd's spare jumpsuit and then he leaves on foot to help the guys. The Boobusters then were directing the Statue of Mario through Mushrom City, cheering up the whole town. They get back to the museum now weakened, and inside Daisy runs and grabs up Tuxie as the Boobusters come through the roof. The first thing they do as Bowser Jr. rants, is hose him down with the Slime Throwers. All of a sudden a hose ties up Daisy, while Luigi puts Tuxie behind some stuff, away from the action. Vigo reveals himself outside of the painting walking in plain sight. Then E. Gadd and Luigi shoot at him and Vigo stuns all four of them. Vigo then gets the baby. Luigi says a few comments which angers Vigo and then he shocks all four again. Then the Toads start singing outside and are happy, which weakens Vigo and he goes back to the painting while leaving Tuxie behind. Meanwhile, outside Russ T. shows up and starts shooting at the gelatinous Slime Shell. Inside Vigo takes possession of Boonie, and Toad uses the Slime Blower to drive Vigo out and back into the painting, and E. Gadd and Luigi blast him until he disappears for good.
Luigi and Daisy kiss, while Boonie wakes up and is very happy. Boonie then pulls up a very cheerful Bowser Jr. and they share the love. Then all four Boobusters, Daisy, Tuxie and Bowser Jr. look at the painting that appears of the four Boobusters and a baby. Then they leave the Museum. Outside the city cheers them on, with a changed Toadsworth among the chorus.