Days after bidding the penguins goodbye, Alex the lion has a nightmare about himself and his friends still stranded in Africa and finding they have all gotten old. He then wakes from his nightmare on his birthday, and the animals present him with a miniature model of New York City out of mud. Alex suggests to Marty the zebra, Melman the giraffe, Gloria the hippopotamus, and the lemurs, King Julien, Maurice and Mort, that they should go to Monte Carlo to get the penguins and the chimps, Mason and Phil, to fly them back to New York City, which they agree to do.

       In Monte Carlo, Alex and his gang's attempt to reach the penguins blunders and sparks chaos in the Monte Carlo Casino, where its security calls the captain of Monaco's animal control, Chantel Dubois, to deal with the animals. A high-speed chase around the streets of Monaco ensues between the relentless Dubois and the animals in a truck driven by the penguins to reach their aircraft and they depart on the plane, barely escaping Dubois.

       In the skies of France, the plane's gear assembly fails and the plane crashes into a suburban rail yard as the authorities close in. They come across a circus train and knock on it, desperately trying to get in. Seeing their only chance of escape is on the circus train, they desperately claim that they are circus animals themselves, which convinces Stefano the sea lion and Gia the jaguar to let them in despite the protests of Vitaly the tiger. The animals soon learn from Stefano that they are performing in Rome and London, where they plan to impress a promoter to get them on their first American tour. Before the zoo animals' claim is discredited, the penguins suddenly appear with a deal to purchase the circus themselves, resulting in the pleased departure of all the humans. Afterwards, Julien finds himself falling in love with a tricycle-riding bear name Sonya. Meanwhile, the circus animals perform their act at the Colosseum in Rome, but the show proves to be a disaster, much to the zoo animals' horror. The angered audience demands refunds, right to going to the point of chasing the circus to the departing train to London.

       En route to London, Stefano soon reveals to Alex that Vitaly was once their inspiration. Once a professional ring jumper who used to leap through incrementally smaller hoops to excite crowds and was always pushing himself to the limit, his attempt at an impossible jump through a flaming pinkie ring ended in disaster when he burned his fur, which he had coated in extra virgin olive oil in order to slip through the narrow opening, destroying his confidence in his talent and the whole circus suffered by his example. The train makes a stop in the Alps, where an inspired Alex convinces the performers to rework their act to become the world-famous animal-only Cirque du Soleil for the lights and acrobatic show. Heartened by Alex's vision, the zoo and the circus animals develop sophisticated acts together and become closer friends in the process, especially Alex and Gia who find themselves falling in love.

       Meanwhile, Dubois is arrested in Rome after causing problems with the local police officers while chasing the animals out of her jurisdiction, but escapes and discovers that Alex was the missing lion from the zoo in New York. Once free, Dubois recruits her injured men and they head toward the Alps, forcing the animals to proceed to London despite incomplete rehearsals. In London, the troupe prepares for the promoter in the audience, but Vitaly is discovered packing to leave. Alex convinces Vitaly to stay by reminding him of how he enjoys performing the impossible and suggests that he uses hair conditioner as a safer lubricant to perform his flaming ring jump. As a result, Vitaly's stunt is performed perfectly, which proves to be the opening of a spectacularly successful show, during which Alex and Gia grew closer to each other. After the impressed promoter arranges for an American tour, Dubois shows up with a paper showing that Alex was missing. Though the penguins are able to foil Dubois' plan, Alex is forced to confess that the four of them are just zoo animals trying to get home, disappointing the others who feel used and lied to by the four of them. Also, Julien breaks up with Sonya, telling her that he cannot be a part of the circus.

       Finally, both the zoo animals and the circus arrive in New York City. Likewise, the zoo group and Julien finally arrive at the gates of the closed Central Park Zoo, only to realize that their adventure has changed them too much to return to captivity and that they were "home" when they joined the circus. The zoo animals resolve to return to the circus and reconcile with their new friends, but they are then tranquilized and captured by Dubois. The zoo staff, delighted by Alex's reappearance, thank Dubois, incorrectly believing that she was returning the missing animals. Unnoticed, Julien manages to reach the circus (despite being darted by Dubois) and reconciles with Sonya, and the penguins realize that the group had been ambushed. Upon learning about the zoo animals' plight, Gia and Vitaly convince the circus animals to rescue their friends and they set out for the zoo, performing aboard a flying circus.

       Meanwhile at the zoo, Alex awakens to find that he along with Marty, Melman, and Gloria are in their enclosures, surrounded by tall chain-link fences. Dubois steps on stage to receive a million-dollar check of appreciation from the zoo, which she rejects, and secretly loads a poison-filled dart into a gun which she hides inside a foam finger in preparation to publicly execute Alex. The circus animals arrive in time to stop her and a massive brawl occurs where the circus uses all of what they had developed as part of their revamped act. As the group tries to leave, Dubois attempts to kill Stefano, who is stranded at the zoo. However, Alex saves Stefano by performing a performance he describes as the "Trapeze Americano", proving that it is real, and all the animals then defeat the insane Dubois, and escape.

       Heartened by this valiant demonstration of their new friends' love, Alex and his friends decide to join the circus permanently to start their American tours across the country. Meanwhile, Dubois and her men find themselves inside shipping crates on a cargo ship bound for Madagascar, thanks to Skipper (just like in the first film).