In Antarctica, three young penguin brothers – Skipper, Kowalski, and Rico – defy the laws of nature to save an egg the other penguins believe to be doomed. After saving it from a pack of leopard seals and accidentally setting themselves adrift on an iceberg, the egg hatches into Private.
Ten years later (after the events of the previous film), the penguins decide to leave the circus to celebrate Private’s birthday by breaking into Fort Knox in order to treat him to a discontinued snack called “Cheezy Dibbles” in the vending machine of their break room. Despite this, Private begins to feel out of place with the team, as he is described as being the “secretary/mascot”. Suddenly, they are abducted by the machine and sent to Venice, Italy by Dr. Octavius Brine, a renowned geneticist who removes his human disguise and reveals he is actually an octopus named Dave, who has grown resentful of penguins after he had been shunned from every zoo in the world because of cute penguins.
Rico swallows Dave’s collection of snowglobes along with a canister of a green substance called the Medusa Serum before the four escape and are chased through the canals and streets of Venice by Dave’s henchmen. When cornered, they are rescued by a group of animals from an Arctic elite undercover interspecies task force agency called “The North Wind” consisting of their leader, a gray wolf whose name is Classified, (Skipper mistakenly refers to him as “Classified” throughout the entire film) a harp seal demolitionist named Short Fuse, a polar bear named Corporal, and an intelligent snowy owl named Eva with whom Kowalski is instantly smitten. Their mission is to help animals who can’t help themselves.
At their hideout, their communication systems are hacked by Dave, who reveals that he has an enormous supply of the Medusa Serum and that he intends to capture the penguins out of every zoo he was kicked out of. Not wanting the penguins’ help, Classified darts the group and sends the group to their most remote base (which happens to be on Madagascar) but the penguins awaken mid-flight and crash land in the Sahara Desert before making their way to Shanghai, which they mistake for Dublin, Ireland. Discovering Dave’s next target in Shanghai using Dave’s snowglobe collection, the penguins ship themselves to their current location and make their way to the zoo. Disguising himself as a mermaid-tailed penguin (a tourist attraction) to distract Dave from his real target, Private himself is captured along with the Shanghai penguins after the North Wind arrives to put a stop to Dave’s plan. The penguins take the North Wind’s high-tech plane to give chase, but accidentally self-destruct the machine. They manage to track Private to an island though, using a device planted on him when Classified darted them before planting them in a flight to Madagascar. Meanwhile, on the island, Dave demonstrates his way to genetically mutate the penguins into hideous monsters as an effort to make humans disgusted by them as revenge.
Skipper and Classified argue on the best means to rescue the captives and stop Dave, settling on Classified’s plan of a frontal assault and Skipper agrees to act as a diversion. The North Wind manages to corner Dave in his lair only to be captured by Dave’s henchmen as well as the other penguins. Dave demonstrates his mutation ray at full power on Private, apparently disintegrating him with the beam, but unbeknownst to them he escapes at the last minute by using a paper clip he swallowed earlier. Private rescues the North Wind members, who want to regroup, but Private, not wanting to leave anyone behind goes to stop Dave. As Dave’s submarine docks at New York with the promise of returning the penguins he found to the zoo, he turns the ray on the rest of the penguins, mutating them all into hideous monsters. The city erupts into chaos as the brainwashed, mutated penguins run amok on the terrified human crowd. Getting the senses back into Skipper, Kowalski and Rico, cute Private decides to connect himself into the ray to return them to normal. They turn all the penguins back to normal in one huge blast.
Private is left mutated from the machine while the rest of the penguins are restored to normal. Despite his strange new look, the Penguins show their gratitude and new-found respect for Private. Dave (who was caught in the blast) has been turned into a pipsqueak version of himself and is trapped in a snow globe where he is admired by a little girl. Finally seeing one another as equals, Classified promises to grant the Penguins anything they want. In addition to Kowalski getting a kiss from Eva, the Penguins are given their own jet packs and they then fly off above the clouds looking for their next adventure.
In a mid-credits scene, the Penguins return to the circus and plug Mort into the ray and use him to revert Private back to normal. Mort does not appear to show any side effects from the ray until he manages to swallow King Julien whole, much to King Julien’s delight.