The first 15 minutes of the film acts as an edited account of Evil Dead I. This alternate version starts with protagonist Ashley 'Ash' J. Williams (Bruce Campbell), and girlfriend Linda (Denise Bixler), driving to an abandoned cabin high in the mountains. Within the cabin Ash plays a tape which explains that the cabin belongs to a Prof. Raymond Knowby (John Peakes) who was busy translating passages from "Necronomicon Ex Mortis", the book of the dead. As the tape translates one of the passages, it awakens an evil force that possesses Linda.
Discovering Linda's disappearance, our Hero ventures outside and is attacked by the now-demonfied Linda. Panicking, the terrified Ash gets lucky and manages to decapitate the love of his life with a handy shovel. Following this murder, Mr Williams decides to do the decent thing and buries his, now headless, girlfriend.
It's at this point the summary of the first film ends as the evil force sweeps in and carries the stressed Ash through the woods, possessing him. Fortunately the sun comes up and drives away the kandarian demon, leaving Ash perfectly healthy, if not a little depressed.
At this point Ash bravely clambers into his Oldsmobile and makes a dash for freedom only to find that the bridge is now destroyed, presumably by evil forces. Yet again the evil pursues him to the cabin and then through it, but Ash, using all his cunning, evades it.
Following a manly nap, our lovable coward wakes in an armchair to piano music. Looking outside he sees Linda's corpse re-animate (Ted Raimi!!!) and dance. She then vanishes and her head appears in Ash's lap, biting hard on his right hand. Unable to remove the head he rushes to the workshed and puts it in a vice, causing it to release its grip and, instead starts to mock Mr Williams, who has already had a trying day. To make matters worse the headless torso charges into the shed and attacks Ash with a chainsaw. Yet again blind luck saves Ash and he defeats the body and uses the chainsaw to destroy Linda's head, this time she's obviously got on Ash's bad side as she gets no further burial.
Upon returning to the cabin with a shotgun, Ash is further frightened by an unseen entity moaning on the rocking chair. Dropping the shotgun, he tries to console himself by telling his reflection in the mirror that everything is fine. However, his reflection suddenly comes to life and contradicts him, laughing at Ash's predicament and then throttling Ash before vanishing.
Continuing this luckless night Ash's hand has seemingly became possessed and starts attacking Ash with plates, knocking him unconscious. It then spots a cleaver and starts to drag Ash's unconscious body towards it. But Ash wakes up stabs his own hand and hacks it off with the very chainsaw he used only moments ago to hack his lover to pieces.
He traps his amputated hand in a tin, but it escapes and hides inside the wall. Ash fires several shells into the wall in an attempt to kill it, and the walls begin to bleed, spraying Ash and covering the entire room in blood. Suddenly the blood vanishes back into the walls, and Ash falls backwards into a chair that breaks under his weight. A deer head mounted on the wall suddenly begins to laugh at Ash, and other items in the house, such as lamps, cabinets, and books, join in. Ash, who appears to be losing his sanity, laughs along with them. The laughter ends abruptly when Ash hears movement outside the front door.
The people at the door are Annie Knowby -Prof Knowby's daughter- (Sarah Berry) who has pages of the Necronomicon with her, boyfriend Ed Gentley (Richard Domeier)-who's not really important as he'll be hacked to pieces within 15 minutes- and their two red neck guides, Jake (Dan Hicks) and Bobbie Jo (Kassie Wesley DePaiva). Ash shoots through the door, clearly on his last nerve. This result in grazing Bobby Jo. Ed and Jake restrain Ash as Annie notices the absence of her parents in the cabin. After seeing the blood on the chainsaw and on Ash, they come to the conclusion that he killed Annie's parents. The four newcomers throw Ash into the fruit cellar.
Annie, Ed, Jake, and Bobby Jo listen to recordings of Professor Knowby's, where they learn that Knowby killed Henrietta (Lou Hancock) -Annie's mother- after she became possessed, and buried her body in the fruit cellar. Surprisingly Henrietta then rises from the grave and attacks the luckless Ash. The other four take pity on him and release him from his basement prison and force the demon wife into the cellar, although this procedure results in Bobby Jo getting a mouthful of eye ball. Fortunately Henrietta is locked underground.
But that's not this demon done yet, it takes human form and tries to persuade Annie to let it out (That's right, she's a crafty kandarian demon). Ash sees through this trick, grabs Annie and shakes his head. This sheer act of manliness overwhelms Annie and makes her say "That thing in the cellar is not my mother". At this point it becomes apparent that Ed too has rudely became possessed and, even more rudely takes a bite out of Bobby Jo's hair and tells them all that they will be "Dead by Dawn". Ash appears to flee at this point and receives a shouting from Annie.
But low and behold our Hero has not fled and as the others have been frozen with fear Ash returns brandishing an Axe. He hacks Ed to pieces (told you) and casually explains their predicament to the others.
Following some unconvincing sound affects, the spirit of the professor appears before Ash and the others, telling them that the pages Annie possesses are the key to dispelling the evil dead. Bobby Jo then discovers Ash's possessed hand holding hers, and she runs into the forest, where she is attacked and killed by the trees. Annie and Ash find a drawing in the book depicting a hero said to have dispelled the evil; the hero appears as a figure with a chainsaw-like hand and a "boomstick." Hysterical with fear for Bobby Jo, Jake picks up the shotgun and forces everyone to go after her. Ash tries to convince Jake that Bobby Jo is dead, but Jake grows furious and throws the book pages into the cellar. The group goes into the woods, only to discover that the trail has disappeared. A demon rushes them, again possessing Ash, and throws Jake into a tree. Ash chases Annie back to the cabin. She grabs the bone dagger from the first movie and accidentally stabs Jake as he is trying to get back into the cabin.
She pulls Jake's body inside and shuts the door. Ash pounds on the door, then suddenly stops. Annie removes the dagger from Jake and then drags him to the cellar door, where Henrietta attacks and kills him. Ash attacks Annie, accidentally ripping her necklace off her neck. As she lays unconscious, Ash looks at the necklace and reverts to his normal self after being reminded of Linda. After convincing a terrified Annie that he is no longer possessed, Ash and Annie agree to vanquish the evil together.
This calls for an awesome montage, as Ash uses his technical know-how to convert the chainsaw into a chainsaw hand, fitting firmly on his amputated stump and sawing the end of his shotgun. The scene ends up with a close up of his rugged face and he announces "Groovy". This establishes that the previous coward has become a lean mean deadite slaying machine.
Ash and Annie return to the cabin, where Ash enters the cellar and finds the pages strewn about the floor, seemingly leading him deeper into the darkness. Henrietta leaps out of the cellar door and attacks Annie. Ash emerges from the cellar and begins fighting with Henrietta; he has the upper hand until Henrietta transforms into a more vicious demonic form. Ash is saved when Annie distracts Henrietta by singing a lullaby that Henrietta sang to her when she was a girl. While Henrietta is focused on Annie, Ash uses his chainsaw to decapitate the demon, then deals the final blow by delivering a shotgun blast to its head. Annie takes the pages and begins translating the text to manifest the evil, which appears in the form of a large bloody head covered in the faces of those it has possessed. While Ash fends off the creature, Annie recites the incantation to rid the earth of the evil. A large vortex opens up just outside the cabin, gravitating everything around into it, including Ash's car, a large tree, and the evil itself. Annie is then stabbed in the back by Ash's severed hand. With her dying breaths, she speaks the last words of the incantation, and Ash is sucked into the vortex before it disappears.
Ash suddenly falls from the sky and lands on a large block of rock. He looks up and finds himself surrounded by medieval knights. The knights are about to attack Ash when a winged demonic creature swoops down from the sky, terrifying the knights as they scatter. Ash reaches for his shotgun and blows the creature's head off. The knights gather around Ash as he prepares to defend himself. One knight then lifts his face plate and declares, "Hail he who hath fallen from the sky to deliver us from the terror of the Deadites!" The army of medieval warriors then falls to their knees and begins chanting "hail" as Ash realizes that he is in fact the prophesied "Hero from the Sky." The film closes with Ash shaking his head in disbelief and screaming "No!" as the camera pans out to show the large army that now awaits Ash's command.