Several months after he disastrously brought Kong to Manhattan, former adventure filmmaker Carl Denham (Robert Armstrong) hides out from his debtors in a boarding house. Dozens of lawsuits have been filed against him, and he learns that he has been indicted by a grand jury for the destruction caused by Kong. When Capt. Englehorn (Frank Reicher) suggests that they immediately set sail for the South Pacific to become merchants, Denham jumps at the opportunity.
When they reach the port of Dakang, they are low on money to pay the increasingly angry crew. Denham and Englehorn go into a nearby village and watch a variety show involving trained monkeys and the dulcet singing voice of Helene (Helen Mack). Helene's father used to be an important vaudeville performer but is now relegated to an impoverished routine in Dakang. His only joy is drinking with an equally down-on-his-luck Norwegian skipper named Helstrom (John Marston). Helene's father drunkenly insults Helstrom, who angrily kills him with a blow to the head. When a toppled lamp causes an uncontrollable fire, Helstrom runs off, leaving Helene to retrieve her father's body and free the trapped show animals.
The next day, Denham casually comforts the oddly unemotional Helene. Later, he meets Helstrom and reveals to Englehart that Helstrom had been the one to sell him the map to Skull Island. Helstrom tells them that somewhere on Skull Island is a vast treasure. Denham and Englehart agree to return to Skull Island to find the treasure, as it would solve all of their financial problems. On the voyage, Helstrom persuades the crew to mutiny once they reach the island. But Red (Edward Brady) betrays Helstrom as well and forces him to abandon ship with Denham, Englehart, Cookie the chef (Victor Wong) and Helene. As the crew sails away, Denham and the others make their way to the island. When they first land, the remaining natives recognize them and scare them away with spears. Finally, they find a secluded cove at which to dock the boat.
They split up to find food. Denham and Helene find "Little Kong," a 12-foot-tall white gorilla who Denham assumes is Kong's son, trapped in quicksand. Feeling sorry for the creature, Helene persuades Denham to push over a dead tree so Little Kong can free itself. A few minutes later, when a giant bear attacks Denham and Helene, Little Kong races to the rescue and beats the bear away with a tree. Helene thinks Little Kong helped them because they had helped him but Denham disagrees. All doubt is removed when Little Kong opens a temple door for them. Inside Denham finds a bejeweled necklace worth millions. When a monstrous lizard ambushes them, Little Kong beats it to death.
Englehart, Helstrom and Cookie arrive at the temple. Helstrom is surprised to find treasure there, as he had made the story up in an attempt to leave Dakang and steal Englehart's ship. Little Kong frightens Helstrom, who runs back to the boat, intending to leave the others. But before he can, he is killed by an elasmosaurus. Helene, Englehart and Cookie go back to the boat while Denham and Little Kong look for more treasure.
Suddenly, an earthquake and hurricane assault the island, destroying it. Helene, Englehart and Cookie, in the boat, try to locate Denham. Little Kong helps him to high ground. When Little Kong's foot becomes trapped in a crevice as the waters rise up to swallow even Skull Island's highest point, he holds Denham above his head until his friends can pull him into the boat. Then the island completely sinks, drowning Little Kong, all of the other fantastic creatures and the remaining natives.
A passing navy ship rescues the four survivors. Later, Helene asks Denham if Little Kong knew he was sacrificing his life to save Denham. He isn't sure. Helene suggests that Cookie and Englehart each get one third of the proceeds from selling the bejeweled necklace. She hopes she and Denham can split the remaining third, as she has fallen in love with him.