Two years after the events of the first game, explorer Nathan Drake (Nolan North) is approached by his former associate Harry Flynn (Steve Valentine) and Flynn's girlfriend Chloe Frazer (Claudia Black) to help steal a Mongolian oil lamp connected to Marco Polo's doomed 1292 voyage from China. The group plans to cheat Flynn's client and take Polo's treasure for themselves. Unbeknownst to Flynn, Chloe convinces Nate, her ex-lover, to leave with her once they get their shares.

Nate and Flynn break into a museum in Istanbul and find the lamp. It contains a map and flammable resin that illuminates a message, revealing that Polo's fleet was shipwrecked in Borneo and that it was carrying the Cintamani Stone, a massive sapphire from the fabled city of Shambhala. Seizing the map, Flynn double-crosses Nate, leaving him to be arrested. Three months later, Chloe helps free Nate with his longtime friend Victor Sullivan (Richard McGonagle).

She reveals that Flynn is working for Zoran Lazarević (Graham McTavish), a Serbian war criminal seeking the stone. Nate and Sully infiltrate Lazarević's camp in Borneo, with Chloe in Lazarević's group as a mole. Nate discovers that the stone never left Shambhala, and locates the temple where Polo's crew slaughtered each other. Nate finds a phurba and a map with a message that its carrier will gain passage to Shambhala through a temple located in Nepal.

Nate and Sully escape after being found by Flynn and his men. Sully backs out, so Nate and Chloe continue to Nepal, which has been ravaged by Lazarević's mercenaries in search of the temple. They encounter Nate's ex-girlfriend journalist Elena Fisher (Emily Rose) and cameraman Jeff (Gregory Myhre), tracking Lazarević. At the temple, Nate and Chloe use the phurba as a key to uncover Shambhala's location in the Himalayas.

After Jeff is shot in an ambush, Chloe insists on abandoning him; Nate and Elena help him but are caught by Lazarević. Chloe switches sides to maintain her cover while Lazarević kills Jeff and gets the Shambhala location from Nate, who escapes with Elena. Elena is skeptical about helping Chloe but helps Nate catch up to Lazarević's train via a stolen jeep. Nate fights through the train to find Chloe, but she refuses to leave with him after he compromised their mission to help Jeff and Elena.

Flynn arrives and shoots Nate. Cornered, Nate causes an explosion that derails the train over a cliff. He escapes the hanging train car, recovers the phurba, and falls unconscious. A Tibetan Sherpa, Tenzin (Pema Dhondup), brings Nate to his village and helps him recover. Nate reunites with Elena and is introduced to an old German explorer, Karl Schäfer (René Auberjonois).

Nate insists that he has given up, but Schäfer is resolute, maintaining that Lazarevic must be stopped, at all costs. Schäfer sends him and Tenzin after the remains of Schäfer's failed expedition for the stone decades ago. Nate and Tenzin travel through ice caves, fighting off strange monsters, assumed to be Yeti, on their way to an ancient temple. They discover that Schäfer was working for the Nazi Ahnenerbe and killed his men to protect the world from the Cintamani Stone.

They return to fight off an attack on the village by Lazarević's men, but Schäfer is kidnapped, and the phurba stolen. Elena and Nate follow Lazarević's convoy to a monastery, where the mortally wounded Schäfer warns Nate to destroy the stone before Lazarević can obtain its power. Nate reconciles with Chloe and reacquires the phurba. He and Elena unlock the secret passage to Shambhala underneath the monastery, but Lazarević corners them.

With Chloe's cover blown, Lazarević threatens her and Elena, forcing Nate and Flynn to help open the pathway to Shambala. The monsters attack but are killed by Lazarević, who reveals them as Shambala's disguised human guardians. After the gate is opened, more guardians attack, allowing Nate, Elena, and Chloe to escape. After making their way through the city to the main shrine, the group discovers that the Cintamani Stone is a giant amber derived, along with the flammable resin, from the sap of an ancient tree of life in the center of the city.

It makes the drinker nearly invincible, explaining the mutated guardians and Polo's doomed crew. Flynn, left for dead by Lazarević for his failures, ambushes them in a suicide attack, seriously wounding Elena. Nate leaves her in Chloe's care and confronts Lazarević at the base of the tree. Lazarević drinks the tree sap, becoming nearly invincible. By shooting explosive pockets of resin near Lazarević, Nate defeats him and leaves him to be killed by the guardians.

As the city crumbles under the collapse of the tree and the exploding resin, Nate and Chloe carry Elena to safety. In the village, Chloe counsels Nate to tell Elena that he loves her, before bidding him farewell. Sully leaves a recovering Elena to Nate. The couple pays their respects at a memorial for Schäfer and kiss.