About a week after the events of Hostel, the film opens with Paxton (Jay Hernandez) in seclusion with his girlfriend Stephanie (Jordan Ladd). The two argue over Paxton refusing to tell the authorities about the Elite Hunting Club in Slovakia since Paxton is aware that the conspiracy and cover up is wider then anyone can imagine. The next morning Stephanie wakes up to discover Paxton's headless body seated at the kitchen table with their cat licking blood from his neck. Meanwhile, in Slovakia, a mysterious package is delivered to Sasha (Milan Kako), the owner of Elite Hunting. From the reaction of Sasha's hounddogs and the size of the box, it is left to the audience to deduce that this package contains Paxton's head.
In Italy, American art students Beth (Lauren German), Whitney (Bijou Phillips) and Lorna (Heather Matarazzo) are convinced by Axelle (Vera Jordanova), a nude model they are sketching, to join her on a vacation to a luxurious spa in Slovakia. The four travel by train to a small Slovakian village and check into the local hostel (the same one from the previous film), where the desk clerk (Milda Havlas) (the same clerk from the previous film), uploads their passport photos to an auction website, where hotshot American businessman Todd (Richard Burgi) bids on Whitney and Beth for himself and his passive best friend Stuart (Roger Bart) as their victims for their murder-vacation.
Later that night, at the village's "Harvest Festival", Lorna discovers that Beth has inherited a vast fortune from her mother. Stuart approaches Beth and the two share a friendly, if awkward, conversation. An intoxicated Lorna leaves to go on a boat ride with Roman, a charismatic local, who proceeds to kidnap Lorna with the help of two accomplices. A local walks up to Beth and asks her for a dance, she declines. He responds with "I could have helped you." Beth doesn't understand and shortly afterward the hostel's clerk approaches and tells her "He won't bother you anymore." Beth and Whitney leave the party, while Axelle volunteers to stay behind and wait for Lorna.
The next morning the three girls head to the local spa to relax. Basking in the relaxing atmosphere of the hot springs, Beth is able to fall somewhat at ease and dozes off. Meanwhile, a naked and gagged Lorna is shackled by her ankles and hanging upside down in a large room, where a woman named Mrs. Bathory (Monika Malacova) enters, undresses, and lies beneath Lorna. She then kills Lorna by slashing her several times with a long scythe and bathing in her blood, then slitting her throat with a sickle.
Meanwhile, Todd and Stuart arrive in Slovakia where the self-assured Todd continues to try to persuade Stuart to go through with their plan which is apparently an escape to cope with the frustrations of their daily lives and of their nagging wives. Stuart is still reluctant to kill a person as a way of acting out his frustration over living with his own nagging wife, but agrees to accompany Todd to the Elite Hunting site.
At the spa, Beth awakens to find herself alone and her belongings stolen. As she looks for her friends, she notices several men approaching and surrounding her. Fearing for her life, she climbs over the spa's walls. While making her escape, she is ambushed by the "Bubblegum Gang", a gang of violent street children (also from the first Hostel film). Before they are able to descend upon her, however, Axelle and Sasha appear and ward them away from her. Axelle escorts a flustered but somewhat relieved Beth to their vehicle. With Axelle and Beth away, Sasha confronts the children. He is angered that they interfered with his "business operations." As punishment, and to warn against future transgressions, Sasha draws out his gun and has one of the children brought forward before him. Sasha summarily kills the boy, and the rest of the gang flees.
After being taken to Sasha's mansion, Beth realizes that Sasha and Axelle are responsible for Whitney and Lorna's disappearances after seeing the men who tried to kidnap her at the spa coming up the stairs of Sasha's home. She tries to hide and discovers a room filled with severed heads, including Paxton's, before being captured and taken to the factory. At the factory, a sobbing Whitney is strapped to a chair in one of the cells while an old woman applies makeup to her face. Whitney severely bites the woman's nose and escapes, only to be captured by the guards.
Stuart then enters his room where Beth is strapped to a chair with a sack over her head. Stuart looks around the room at the tools with horror. He then takes the sack off Beth's head and explains about Elite Hunting. Stuart tells Beth that the group is a worldwide secret society where wealthy members come to Slovakia (one of a handful of countries) to kill people that the organization abducts as a twisted satisfaction for the psychopath members and first-time clients to kill people in various fantasy-like ways for the sole purpose to watch them die and to get the satisfaction of killing a human. All the high-paying members are important people of society in every country in the world (politicians, lawyers, doctors, policemen, directors, actors, businessmen, etc). He then unties her from the chair and lets her think she is escaping. He then punches Beth in the face. The passive Stuart now suddenly becomes angry and ranting and raving at Beth and begins yelling at her as if he feels he's talking to his domineering wife.
Meanwhile, Whitney is taken to Todd's cell and strapped to a chair, where he taunts and terrorizes her with a circular saw. Overwhelmed with excitement, Todd accidentally cuts into her face with a power saw, maiming her, which disturbs him so much that he now realizes the horrors of committing such an atrocity. He tries to leave, claiming he no longer wants to kill her. The guard explains that he must kill her if he wants to leave; when he refuses, the guards set the dogs on him, killing him for violating his contract.
The guards then bandage Whitney and show her photograph to other clients in adjoining cells, offering her at a discount. In one room, a middle-aged, Italian-speaking cannibalistic client (Ruggero Deodato) puts in a bid. He is then shown cannibalizing Miroslav (Stanislav Ianevski), the friendly local guy who Whitney met at the Harvest festival. The young man's right foot is gone and on his left, several layers of flesh are missing. The 'Italian Cannibal' continues to cut off pieces of the young man's flesh with a knife and fork and eat it while listening to the classical music score "Habenera" from the opera Carmen. The guards then move to another client, where the man bids. He is shown torturing a man on a caged bed that electrocutes the victim.
The deranged and sadistic Stuart, now torturing Beth and blaming her for his friend's death, accepts the offer and kills Whitney. As he returns to finish with Beth, she seduces him into releasing her from the chair, then fights him off as he lies on her and chains Stuart to the chair. Beth grills Stuart for the code to the cell, then sticks a needle in his ear when he refuses to tell her. Stuart tells Beth the code, but she still needs to be buzzed through the door, which inadvertently summons Sasha and the guards to the room. Beth offers to buy her freedom with part of her inheritance. When Sasha explains to her that she must kill somebody to leave, Beth cuts off Stuart's genitals and tosses them to one of the guard dogs; Beth then orders Stuart to be left to bleed to death as he screams in pain. Per the standard contract, Beth is given an Elite Hunting tattoo and is made an honorary member. Beth is then permitted to leave, but she is sternly ordered to keep silent about the organization for the rest of her life.
In the closing sequence, Axelle is lured from the village festival into the woods by the Bubblegum Gang, where the revenge-seeking Beth surprises and beheads her for leading her friends to their deaths. The film then ends on a shot of Axelle's decapitated body with the Bubblegum Gang dancing in the background and playing soccer with Axelle's severed head.