Infamous 2 takes place in a modern-day world where people with super human abilities, called Conduits, exist—created by a device called the Ray Sphere. The Ray Sphere unlocks these abilities in rare humans who possess the Conduit gene by siphoning away the energy of regular humans, killing them. The first such event granted electric-based abilities to Cole MacGrath, but devastated his home of Empire City. The event is part of a scheme instigated by Kessler, revealed to be Cole from an alternate future where a creature known only as the Beast has ravaged the world. Kessler fled the Beast with his family and they died as a result, forcing Kessler to use his newest power to go back in time and better prepare the Cole of the present. Clandestine organizations attempt to create and use Conduits for their own purposes and see Cole as one of the most powerful, attempting to gain his aid or eliminate him.
In the month following the events of Infamous, Cole (Eric Ladin) prepares to face the Beast, an entity of untold power whose coming was foretold by Kessler. Cole and his friend Zeke (Caleb Moody) meet with NSA agent Lucy Kuo (Dawn Olivieri) who tells them she can lead them to Dr. Sebastian Wolfe (Michael Ensign), a scientist who worked on the development of the Ray Sphere which granted Cole his powers, and who claims he can make Cole even stronger. As they are about to leave, they are confronted by the Beast. Cole fights the Beast but proves to be no match and is severely weakened as a result. Cole, Zeke and Kuo escape to New Marais to find Wolfe while the Beast pursues them, completely wiping out Empire City and destroying everything in its path.
In New Marais, they find the city under the control of wealthy industrialist Joseph Bertrand III (Graham McTavish) and his anti-conduit militia. Aware of Cole's arrival and abilities, Bertrand wages a propaganda campaign against him. Before Cole can meet Wolfe, his lab is destroyed, spreading Blast Shards across the city. Wolfe survives the explosion and explains to Cole that by finding and absorbing the power of the Blast Cores he can boost his powers to a point where he can activate the RFI (Ray Field Inhibitor) which would allow him to weaken the Beast. Wolfe is captured by the Militia and a rescue attempt fails, resulting in Wolfe's death and Kuo's capture. Cole and Zeke meet two new allies: Laroche, leader of an anti-militia resistance group, and Nix (Nika Futterman), a Conduit who dwells in the swamp. Together they locate Kuo trapped in a facility where she has been infused with ice-based abilities. Cole frees her but inadvertently unleashes an army of mercenaries also imbued with ice-powers.
Cole and his allies attack Bertrand's operations before eventually learning that Bertrand is himself a Conduit, able to transform into a building-sized monster (that Cole calls a 50 ft "Maggot") and convert humans into monstrosities. In the past, he had used a Ray Sphere to gain abilities, believing himself destined for greatness. The activated Ray Sphere kills many but also grants Nix her abilities. Disgusted by the powers he receives and now believing Conduits to be evil, he attempts to incite a Conduit genocide using the power of the Conduit mercenaries he helped develop to instill fear in the populace. Meanwhile he uses his monsters to justify the protection of his militia to New Marais. Cole and his allies eventually coax Bertrand into again transforming, where he loses self-control. Cole is able to kill Bertrand, ending his plan.
During this time, the Beast has arrived in New Marais. While on recon Cole encounters John White (Phil LaMarr), an NSA agent who had seemingly died in a Ray Sphere explosion in Empire City. John reveals himself as the Beast. He shows Cole that a plague, created when the Ray Sphere was first activated in Empire City to empower Cole, has been spreading across the country. The plague is killing humans but Conduits are immune, and John is using his powers to find and empower potential Conduits, sparing them at the cost of countless human lives each time. Believing humanity is lost, John implores Cole to help him find and convert the Conduits so that some may survive. After finding all of the Blast Cores, Cole prepares to activate the RFI. However, he learns that the device will not just weaken the Beast but kill all Conduits, but it could also nullify the Ray Sphere radiation, ending the plague. The story diverges from this point dependent on whether the player chooses to activate the RFI, sacrificing Cole and thousands of Conduits but saving millions of humans, including Zeke who has contracted the plague, or work with the Beast to save the Conduits while the rest of humanity will perish.