Carmen (Alexa Vega) and Juni (Daryl Sabara) are the children of special agents Gregorio (Antonio BAnderas) and Ingrid Cortez (Carla Gugino), working for the OSS, a "straight out of a science fiction book" government agency of secret agents and some really cool gizmos.
In the last movie, Carmen and Juni join the OSS in order to rescue their kidnapped parents, proving that kids can do the job efficiently too. The OSS then sets up a special Spy Kids department, where Carmen and Juni are assigned as Level 2 OSS agents. This time around, our heroes travel to a mysterious volcanic island, where strange and bizzare occurences are happening, such as the breaking down of all electrical equipment, and mysterious dissappearances of OSS agents.
The story takes off with the magna men crashing an OSS meeting (more like a party), and taking off with an antimatter device. Juni is falsely accused of not saving the device, and is fired from the OSS. Carmen then hacks into the OSS database and restores Juni's status, and then assigns themselves on the case to investigate and retrieve the antimatter device, last sighted at the mysterious island of lost dreams.
Juni's parents, meanwhile, take off on their own mission to rescue their children from the island, accompanied by Ingrid's parents (much to the dislike of their son-in-law).
On reaching the island, the kids realise that none of their electronic spy gadgets work, and they are then left to rely on their own wit and abilities to survive and battle it out against the mysterious and dangerous magna men, some spooky and bizare creatures and ghosts, and even their arch rivals in the spy business, Garry (Matt O'Leary) and Gerti Giggles (Emily Osment), children of the new OSS director Donnagon (Mike Judge).
The storyline is quite average, with some simple humour added to keep the audience entertained. The humour and plot are targeted mainly at kids, and it does its job effectively. Then again, this is a kids movie, and not meant for someone who wants an intellectually stimulating, mature viewing. The screenplay is fairly well paced, and it does manage to keep you entertained throughout the movie.