NATOs monitoring facility observes the return of Dr. Evil (Mike Myers) and informs British intelligence. At Dr. Evils Seattle headquarters, Dr. Evil is presented with a one-eighth-size clone of himself (Verne Troyer) whom he calls Mini-Me. Number Two (Robert Wagner), who survived his incineration towards the end of the previous film, also reveals the enormous profits they have made by legitimately investing in a previously unknown startup company called "Starbucks". However, Dr. Evil is unimpressed and unveils his latest evil planhe has developed a time machine to go back to the sixties and steal Austin Powers (also Mike Myers) mojo, a fluid inside his body that's the source of Austin's skills and his sexual prowess. Meanwhile, back in 1999, Austin is still enjoying his honeymoon with his wifethe former Vanessa Kensington (Elizabeth Hurley). Unfortunately, something goes amiss, and it turns out that she is actually one of Dr. Evils kamikaze fembots who attempts to kill Austin, but eventually self-destructs. He proceeds to the lobby naked and celebrates being single again.
Dr. Evil and Mini-Me go back to 1969 and meet up with a younger Number Two (Rob Lowe) and (a not-so-young) Frau Farbissina (Mindy Sterling). A disgruntled Scottish Guard with unusual eating habits called Fat Bastard (again, Mike Myers) has been hired to extract Austins mojo from his frozen body at the Ministry of Defence Cryo Chamber.
British intelligence warns Austin that one of Dr Evils agents is after him, and during a photo shoot the wanton Ivana Humpalot (Kristen Johnston) seduces him, but at the last moment she admits to her orders and claims he is too sexy. They then proceed to have sex in her bed. Unfortunately they do not get far before he discovers that he has lost his mojo.
The MOD learns that Dr. Evil has developed a time machine and sends Austin back to 1969 with its own time travel device, in a convertible Volkswagen New Beetle painted with 60's LSD-themed colours. Austin arrives back at a party in his London pad and with the assistance of a CIA agent, Felicity Shagwell (Heather Graham), escapes another assassination attempt by two of Dr. Evils operatives. However, the two of them are chased by Mustafa (Will Ferrell), yet another of Dr. Evil's henchmen, and when caught he reveals the existence of a secret volcano lair (due to an inability to withhold the answer should he be asked the exact same question three times in a row), but is prevented from divulging its location by the intervention of Mini-Me. After examining photographs from the crime scene at MOD headquarters, Austin identifies Fat Bastard as the perpetrator of the theft.
At Dr. Evils secret volcano lair, Fat Bastard arrives with Austins mojo. Dr. Evil drinks some of it and engages in some private time with Frau Farbissina. This results in an awkward sometime after situation when Frau reveals that she is late. However, at the same moment Scott Evil arrives through the time portal. Dr. Evil announces his latest plan: to hold the United States and the whole world ransom by threatening to destroy Washington D.C., and then additional major cities each hour, using a giant laser on the moon.
In London, Austin and Felicity get to know each other, but he has to reject her advances owing to the loss of his mojo. Under MOD instructions to implant a homing device, Felicity seduces Fat Bastard. Unfortunately, it is left in a public toilet, but a stool sample from the scene reveals traces of a rare vegetable that only grows on one Caribbean island.
Austin and Felicity arrive on the island but are apprehended. They are put in a cell with a single guard who is overcome by the fact that Felicity shows off her breasts, upon which the mesmerized guard falls into a pool of lava. Dr. Evil and Mini-Me leave for the moon to install the giant laser and are followed by Austin and Felicity, who hitch a ride on Apollo 11. In Dr. Evils moon base, Austin battles with Mini-Me, whom he eventually flushes into space.
As Austin confronts Dr. Evil, the giant laser is fired, but Austin manages to divert it and save Washington D.C., although Felicity is killed by poison gas. However, using Dr. Evils time portal Austin travels back ten minutes and meets up with himself to save both the world and Felicity.
Foiled again, Dr. Evil initiates the self-destruction mechanism of the moon base and escapes in his rocket after throwing the bottle of Austin's mojo in the air. He fails to catch it and it crashes on the floor, destroyed, but Felicity points out that all the things he has done show that he never really lost it in the first place. With seconds to spare they escape through the time portal to 1999.
Fat Bastard makes another attempt to assassinate Austin, but is kicked in the crotch by Felicity. Finally, Dr. Evil recovers Mini-Me from space and once again vows to "get" Austin Powers.
Later, on Jerry Springer Scott (Seth Green) learns he was not created in a test tube but is actually the love child of Dr. Evil and Frau Farbissina.
There are two Austins in 1999 as both Austins escaped Dr. Evil's moon base using the time machine, Austin #1 finds Felicity sleeping with Austin #2.