15-year-old Marnie, has just spent two years with her grandma Aggie. While hosting a mortal neighborhood Halloween party, Marnie tries to impress a cute new boy, Kal, by showing him Aggie's magically-hidden room. Unbeknownst to Marnie, Kal is the son of Kalabar and takes the opportunity and steals Aggie's spell book. Soon Aggie notices unwelcome magical symptoms. She and Marnie travel to Halloweentown to investigate and fix the problem before the portal between Halloweentown and the mortal world, open only on Halloween, closes at midnight. They discover that the whole town has been turned into a made-to-match (black and white) (slient film), and that the inhabitants have been turned into humans (or rather, into the Halloweentown caricature of humans as dreary and monotonous beings concerned only with such things as sensible dress or sorting socks). The victims include Marnie's goblin friend Luke. Aggie diagnoses this as the "Grey Spell." Aggie contacts grandson Dylan back home for a spell from her book, and Dylan and sister Sophie find the book missing. Marnie and Aggie learn that Kal is a warlock and the son of their enemy Kalabar (from the first movie). Kal broke the Code of Merlin, a way of life for magical beings, by stealing Aggie's book to limit her ability to hinder his attempt to complete his father's revenge on both Halloweentown and the mortal world. Aggie believes that if he is willing to go that far, then they can't put anything past him. Aggie searches for her spare copy of her spell book at her house in Halloweentown, but it is missing and she despairs.
During a conservation between Aggie and Marnie, about another way to reverse the "Gray Spell," Marnie inadvertently says the spell "Trap a" which reverts Luke back to his goblin form. Unable to explain the spells' reversal, the group soon believes that it is temporary. The trio travel to the lair of the well known junk magnet of the universe Gort who acquires lost items from both realms. He had been discolored by the Grey Spell and had sold the spare spell book some time ago. Unfortunately, Aggie loses her color and sorts socks with Gort and everyone is trapped in the junk man's house. Marnie uses time travel to go back before black and white happened. Sadly, when they get there, they learn that Gort had sold the spare spellbook to Kalabar about 50 years prior (as Luke says, "Kalabar must have been working on this world domination thing for decades."). By remembering what things Marnie had been, hastefully, saying back when Luke returned to his normal goblin form, they learn that, in her haste, she said "trap a", which is "Apart" spelled backwards, hastily.
Despite using a wizard's lost time-line, to get back to the present (as, due to the fact that, no matter what time period it is in Halloweentown, time keeps moving in the mortal world), they arrive too late and the portal shuts tight with a big, strong, bulletproof door, trapping Marnie in Halloweentown. Kal, having enspelled Halloweentown into a monochrome talkie caricature of the mortal world, is now at work enspelling the mortal world into a Technirama 70 monster movie caricature of Halloweentown. Sophie and Dylan realize that Alex, believed to be Kal's father, was actually a golem intended to distract Gwen. To make their mom believe that, Sophie creates a fly. Alex, being made of frogs, eats the fly and ends up getting dispelled by a furious Gwen. Being informed of Kal's plot to turn humans into the creatures they "mock" on Halloween, Gwen tries to take off her mask, but it doesn't work. Kal makes the mask stick to her face. He then continues his spell; they are too late as chaos has endured throughout the mortal world. Dylan and Sophie hide from the monster humans.
Marnie, trapped in Halloweentown, frees Aggie, but refuses to admit that they are locked in. She contacts her siblings through a shrunken head, and they create a new spell that forces the portal between Halloweentown and the mortal world to reopen permanetly. An angry Kal confronts Marnie, who mocks him and demands for the book. Kal produces vines and takes both spell books in an attempt to prove his own superiority, which fails when Marnie takes them from his hands. Kal then is sent away the vines, apparently not according to his own desire, and the family breaks the spells. Aggie then undoes the damage after a talk with Gwen head to head, setting things right in both the mortal world and Halloweentown.
- It was known by two other names during production, Halloweentown II and Return To Halloweentown. The latter was used later for the 4th in the series.
- In the first movie, the closed-captioning spell Kalabar's name as "Calabar". However, the name is spelled "Kalabar" in the title of this movie even though the ending credits spell the character's name as "Calabar". It should also be noted that the character's name is spelled "Calabar" in the opening and closing credits of the first Halloweentown.
- Just before the Creature spell is undone, there is a human dressed as a chicken.
- When Marnie opens the portal to see her brother and sister they are not looking at the portal. In the next scene they look directly at the portal when Marnie and Aggie come out. Time seems to continue while Marnie is in the time line.
- This movie takes place two years after the original Halloweentown, yet it was released three years after said movie.
- This film is much darker and more serious in tone than its predecessor and it's following sequels. Despite the film's success, its sequels have been more comedy driven.
- The film references academic thought such as Arthurian legend and even the advanced physics of Stephen Hawking.
- The thought that Kal doesn't appear after flying away from the party screaming is false, because at the end of the movie right before the credits, Kal is shown to be standing on the roof of a building peering down on the citizens of HalloweenTown, plotting his revenge.
- Kimberly J. Brown - Marnie Piper, a 15-year-old witch who goes on a journey to undo Halloweentown's gray spell.
- Debbie Reynolds - Splendora Agatha "Aggie" Cromwell, the grandmother of Marnie, Dylan, and Sophie. She is a witch.
- Judith Hoag - Gwen Piper/Cromwell, the mother of Marnie, Dylan, and Sophie.
- Joey Zimmerman - Dylan Piper, the 14-year-old brother of Marnie and Sophie. He tries to be normal, but he gets dragged into Halloweentown's situation.
- Emily Roeske - Sophie Piper, the 9-year-old sister of Marnie and Dylan. She is smart and loves her powers.
- Phillip Van Dyke - Luke, the goblin. He helps Marnie on her journey.
- Daniel Kountz - Kal, the Son of Kalabar. The main antagonist of the film. He destroyed Halloweentown with a spell from Aggie's spellbook. He wants Marine to fall for him, but she rejects after learning the real him.
- Blu Mankuma - Gort, the garbage collector.
- Richard Side - Benny, the skeleton taxi driver.
- Xandra Radley - Astrid, the elf.
- Peter Wingfield - Alex, a golem made of frogs and Kal's henchman. The secondary antagonist of the film.