He was the second son of Emperor Louis IV the Bavarian by his first wife Beatrice of Silesia and a member of the Wittelsbach dynasty.

But soon the Golden Bull of 1356 caused a new conflict since only the Palatinate branch of the Wittelsbach and his brother Louis VI the Roman as margrave of Brandenburg were invested with the electoral dignity.

When Duke Meinhard, the son of his older brother Louis V the Brandenburger died in 1363, Stephen II succeeded also in Upper Bavaria and invaded Tyrol.

Stephen finally renounced Tyrol to the Habsburgs with the Peace of Schärding for a huge financial compensation after the death of Margarete Maultasch in 1369.

However, Stephen accepted his brother Otto, the last Wittelsbach regent of Brandenburg, as his nominal co-regent when he returned to Bavaria in 1373.