The evil sorcerer Rothbart (Jack Palance) is planning to take King William's (Dakin Matthews) kingdom for himself by mastering a type of Black magic known as The Forbidden Arts. Before he can strike, Rothbart is arrested. Despite calls for his death, King William spares Rothbart's life and banishes him. A hateful Rothbart swears to King William that he will one day get his power back and take everything William owns and loves. King William and Queen Uberta (Sandy Duncan) make their children, Odette and Derek, meet every summer, hoping that they will fall in love and marry, uniting their two kingdoms. When they meet for the first time, the royal children take an immediate dislike for each other, but as the years pass they somehow reformed themselves and gradually falls in love.
One year since The Swan Princess, Derek and Odette's anniversary is interrupted by the dangerous vandalism of Knuckles, minion of the evil Magician (fantasy) Clavius. It is revealed that Clavius was the former partner in crime of the villain Rothbart; they conquered the Forbidden Arts together until Rothbart drove Clavius underground after betraying their partnership. Clavius now wants to claim the magical orb of the Forbidden Arts that is located somewhere in Swan Lake castle, which has become Derek and Odette's new home. Clavius has Knuckles perform acts of vandalism in the kingdom that keep Derek busy and make him neglect both Odette and Uberta.
As Derek and Odette's kingdom prepares to celebrate Festival Days, the evil sorceress Zelda plots to reclaim Rothbart's notes on the Forbidden Arts; notes she helped write when she and Rothbart were partners. To discover if the notes still exist, Zelda captures a Mockingbird named Whizzer, who has the ability to imitate any voice after hearing it only once. Though Zelda's magical abilities are limited, she can create a magical fireball called a seeker to target anyone she commands it to. Threatening his life with this ability, Whizzer goes to Swan Lake Castle as a spy and overhears how Derek and Rogers discovered Rothbart's notes and had them hidden. Odette never knew Derek found the notes and always assumed if such things were discovered, the notes would be immediately destroyed. She tries to convince Derek to dispose of it saying how nothing good will ever come of them while Derek maintained his belief of someday using the notes for good.
Princess Odette, Prince Derek and their trusted woodland friends return for their first Christmas celebration! But, with the villainous Rothbart striving to destroy Christmas itself, will they be able to stop him and save the day?
Centuries ago, a sentient evil force known as the Forbidden Arts entered Earth from the underworld, intent on destroying all of its rivals for magical power. It learned of a Prophecy that boded ill for the Forbidden Arts:
In the middle of the night a strange masked man goes to the kingdom of Trumbeau. There, he makes a huge hole underneath a dam near the village where everybody is fast asleep and disappears. The next morning Derek, Odette and Chef Ferdinand are going to the village to have a trade agreement meeting. The Trumbeau's king and his wife were friends of King William, Odette's late father. King William once saved his life and Odette mentioned that her father often had told her about that.
Queen Uberta has written a book called "Queen U to the Rescue!" Where she details a (fictional) account of how she saved the kingdom from Count Antonio, and saw through his fake proposal for marriage. In the morning, she wakes up to find a "Z" slashed into the cover of her book, and Lord Rogers thinks she did it by accident with her long, sharp fingernails.
Princess Odette has decided to host a music contest to celebrate princess Alise’s birthday and also have the dance of her coming of age.
Princess Odette and Prince Derek go to the wedding of princess Mei and her beloved Chen. Evil forces threaten the wedding plans.
