Set four years after the events of the first film, Allen Bauer (Todd Waring) and his wife, Madison (Amy Yasbeck) a mermaid, have been living on a deserted island hideaway.

Allen is bored with life on the island and admits he misses New York City and his older brother, Freddie.

Madison has the magical ability to view images in water and communicate by running her finger in a circular motion over it; she uses this method to show Allen how things are going on back in New York with Freddie (Donovan Scott).

They are welcomed back by Freddie, and Allen manages to attract a potential new customer for Bauer Produce, the wealthy Karl Hooten (Noble Willingham).

Karl places importance on all-American family values, so Allen and Madison are to present themselves as a typical happily married couple.

Madison declares her unhappiness with how Allen is treating her and disregarding her feelings, and leaves off swimming into the ocean.

They sneak into the aquarium, where Dr. Otto Benus (Mark Blankfield) is doing research on Salty, and try to set him free.

Yasbeck went through a crash course in scuba diving as well as extensive physical training to prepare to play Madison in the underwater swimming shoots with her mermaid tail costume.

(Daryl Hannah's Splash mermaid tail was designed and constructed by Academy Award-winning visual effects artist Robert Short.

Yasbeck would spend an hour at a time underwater, frequently taking breaths from the oxygen tanks of nearby divers.