Ariel and Eric celebrate the birth of their newborn daughter Melody on a ship at sea. along with Hubie, Marina, Rocko, Splatter, Petra, Beanie, Timmy, Pikatwo, Bonkers, Fawn, Stanley and Buck. Ariel's father King Triton presents Melody with a magic locket. The party is interrupted by Morgana, sister of the deceased Ursula, who threatens to cause Melody harm, using her as leverage to get Triton's trident. Ariel and Eric work together to foil Morgana's plan.
Fearing Morgana and remembering Ursula, Ariel decides to withhold all knowledge of the sea world from Melody. The locket is tossed into the ocean, and a massive wall is built to separate the royal castle from the sea.
Twelve years later, Melody remains unaware of her mother’s mermaid heritage and is forbidden from ever going into the sea. However, she has been sneaking out of the castle regularly to swim and one day finds her locket. Seeing her name on the locket, Melody confronts her mother and, frustrated with her mother's refusal to answer her questions, Melody takes a boat and sails away from home. Her parents soon learn that she is gone, and Triton uses his magic to transform Ariel back into a mermaid to search for Melody with the penguins. The rest of Hubie's team search on land.
Melody is lured to Morgana’s lair by her minions, Cloak and Dagger the manta rays, and Undertow the tiger shark, and Morgana uses the remains of Ursula's magic to temporarily transform Melody into a mermaid. Morgana says that the transformation will be permanent if Melody can get hold of the trident, which she claims was stolen by Triton. With the help of Tip the penguin (Hubie's cousin) and Dash the walrus, Melody successfully returns to Morgana with the trident. Ariel tries to stop Melody, but before she can explain that Morgana is evil, Melody gives the trident to Morgana. With the trident in her grip, Morgana reveals her true intentions and grabs Ariel with her tentacle and holds her hostage.
Morgana uses the trident's magic to lord over the ocean, rising to the surface to gloat. Scuttle, Triton, Sebastian, Eric, Hubie and his friends arrive, and a battle ensues against Morgana and her minions. Melody manages to grab the trident and throw it back to Triton by climbing up the cliff on which Morgana is standing and sneaking up on her. Triton uses his trident to encase Morgana in a block of ice, which sinks underwater.
Melody reunites with her family, and Triton offers his granddaughter the option of becoming a mermaid permanently. Instead, she uses the trident to disintegrate the wall separating her home from the sea, reuniting the humans and the merpeople. Hubie thanks Tip and Dash for their heroic efforts.