Plot
A year after the events of the previous film, Merliah Summers is competing in the heats of an invitational surf-meet. Merliah wins first place, narrowly beating rival surfer, Kylie Morgan, though both get to compete in the finals in Australia.
Merliah uses her magical necklace to transform into a mermaid and tell her mother Queen Calissa the good news. Calissa is preparing for the Changing of Tides Ceremony to be held at the ancient city of Aquellia deep in the waters of New Zealand, which is performed every twenty years to make the next princess of Oceana an official member of the royal family and imbuing them with the power to spin Merillia. Calissa expects Merliah to attend, but the surfing competition is on exactly the same day, causing them to argue, after which they part ways.
In Australia, during the next round of the meet, Kylie beats Merliah when she deliberately brushes Merliah's surfboard and causes her to wipe out. Despite Kylie's win, Merliah's handstand maneuver attracts the attention of the crowd. That night, at a luau, Kylie is approached by a rainbowfish named Alistair who tells her that Merliah has powers that give her an advantage with surfing. Following Alistair's advice, Kylie steals the necklace, which Merliah has taken off for a photoshoot, puts it on and turns into a mermaid. Alistair then lures Kylie underwater to the deep trench where Eris is still trapped in a whirlpool. Snouts the sea lion, who witnessed Kylie's transformation, secretly follows them. Alistair and Eris trick Kylie into entering the whirlpool, taking Eris' place and freeing her.
Snouts returns to the surface to fetch Merliah. Merliah follows Snouts to the trench and frees Kylie from the whirlpool, causing it to destabilize and self-destruct. Kylie thanks Merliah and apologizes for stealing her necklace; but keeps it for the time being so that she can breathe underwater in mermaid form. Kylie then promises Merliah to help her stop Eris.
Eris and Alistair travel to Aquellia so that Eris can perform the Changing of Tides ceremony herself. Along the way, they meet a group of large, powerful fish called Stargazers. Eris threatens them with her new spell which bring people's worst fears to life, and they agree to obey her. While Calissa and the ambassadors of the ocean—Mirabella, Kattrin, Selena, and Renata—are waiting for the midday sun for the ceremony to begin, they are attacked by Eris. Eris manages to cast her spell on Calissa, whose tail becomes heavy and drags her down, trapping her at the bottom of the ocean. Eris casts the spell on all the ambassadors and cages them.
Merliah, Kylie, and Snouts meet up with Zuma and Calissa; Calissa and Merliah reconcile. As Calissa is unable to move because of the spell, Merliah decides to perform the ceremony in her place, even though doing so will make her a mermaid permanently. Merliah, Kylie, Zuma, and Snouts go to Aquellia, where they manage to get past the Stargazers and free the ambassadors. Merliah manages to get on the throne at the right time, but it doesn't work as she isn't in mermaid form. Kylie quickly passes the necklace to Merliah in time, and the ceremony is completed, undoing all of Eris's spells and giving Merliah a new tail. Eris tries to cast her spell on Merliah, but she reflects it back to Eris. Eris's worst fear manifests and her tail is transformed into legs. The ambassadors then arrest Eris and take her away.
Merliah, Calissa, and Kylie swim to the surface in time for the surf meet finals. Calissa allows Kylie to keep the necklace since she has proven herself by helping them. Although Merliah has accepted her duty, she wishes that she could be human again and her legs magically return by themselves. Calissa explains that the ceremony turns whoever performs it into their true self, and Merliah's true self is both mermaid and human.
During the competition, Merliah is distracted by her newfound ability to create Merillia when she touches the water. Kylie wins and brings Merliah on stage to share the trophy in front of the cheering crowd.
