Three years after the first film, Stuart Little questions his ability after a disastrous soccer match alongside his brother George, who accidentally kicked him with a soccer ball. He grows more discouraged after accidentally breaking George’s model airplane. Stuart’s father, Frederick, tries to encourage him, telling him that “every cloud has a silver lining”.
Later, a canary named Margalo falls into Stuart’s car on his way home from school. Margalo is secretly assisting a peregrine falcon named Falcon to steal from households upon earning the homeowners’ trust. Orphaned as a child, Margalo assists Falcon in exchange for a home. However, when Stuart offers to let her live with the Littles, Margalo grows reluctant to steal from them. Unable to concentrate on her assignment for Falcon, Margalo becomes close friends with Stuart. Falcon eventually loses patience and threatens to eat Stuart unless Margalo gives him Mrs. Little’s ring. Concerned for Stuart’s safety, Margalo steals Eleanor Little’s wedding ring.
When the Littles discover that the ring is missing, they think it has fallen down the sink drain. Stuart offers to be lowered down the drain on a string to get it, but the string breaks. A guilt-stricken Margalo saves him, then leaves the Little house the following night to protect Stuart. Upon realizing Margalo’s disappearance, Stuart assumes she has been kidnapped by Falcon and decides to rescue her with the Littles’ cat Snowbell. Running away from home, Stuart asks George to cover for him while he is gone.
With the help of Snowbell’s friend Monty, Stuart and Snowbell discover that Falcon’s headquarters is at the top of the Pishkin Building. There, Stuart discovers that Margalo stole his mother’s ring. When Margalo tries to reassure Stuart that she really is his friend, Stuart begs her to come home with him. Refusing to lose his asset in Margalo, Falcon then attempts to kill Stuart by dropping him from the top of the building. Stuart lands in a passing garbage truck. Falcon traps Margalo in a paint can as punishment for being Stuart’s friend, but Snowbell manages to reach the top of the building while Falcon is absent and release her.
Regaining consciousness on a garbage barge, Stuart finds George’s broken model airplane, which he fixes using material on the barge and uses to return to Margalo. Meanwhile, the Littles discover that George has been lying about Stuart’s whereabouts. As Falcon is about to kill Snowbell, Margalo declares her independence from Falcon and attempts to flee from him with Eleanor’s ring. Before Falcon can catch up, Stuart catches Margalo in his plane.
The Littles follow them by taxi as they begin to fly through Central Park, with Falcon closely pursuing him. Realizing they cannot outrun Falcon, Stuart decides to face him directly. Using Eleanor’s ring to temporarily blind Falcon, Stuart jumps out of the plane just before it strikes Falcon, defeating him. Margalo catches Stuart, and they reunite with the Littles, who all return home. In the fall, Margalo says goodbye to the Littles and leaves to migrate south for the winter.