Woody prepares to go to summer camp with Andy for the weekend, but Andy rips his arm by accident while playing with his toys before leaving, forcing him to be placed on a shelf and stay behind. There he discovers that Andy's mother is having a yard sale, to where she takes a fellow shelved toy, Wheezy, an old rubber penguin with a broken squeaker, to be sold. Woody sneaks down to the yard sale with the help of Andy's pet dog Buster and saves Wheezy, but is accidentally left outside and found by an enthusiastic toy collector, who ends up stealing him when Andy's mother refuses to sell him. Buzz chases after the collector's car as he drives away, but quickly loses him. During an investigation back at Andy's room, Buzz and the other toys quickly determine that the thief is Al McWhiggin, owner of the toy company Al's Toy Barn. Buzz recruits Mr. Potato Head, Rex, Hamm, and Slinky Dog to go out and save Woody.
In Al's apartment, Woody discovers that he is a valuable collectable based on Woody's Roundup, a popular children's TV show from the 1950s, and meets three other toys from the franchise: Jessie, his yodeling cowgirl sidekick; Bullseye, his trusted horse companion; and Stinky Pete the Prospector, who is in mint condition inside his unopened box. With Woody's inclusion and his collection complete, Al plans to sell his Woody's Roundup merchandise to a toy museum to Tokyo, Japan. The three other toys are excited about the trip, but Woody, still being Andy's toy, wishes to return home and makes several failed attempts at escaping the apartment, though putting himself at odds with Jessie, who fears going back to storage. After his arm is fixed by a toy repairman, Woody learns that Jessie was once a toy beloved by a girl named Emily, but was put away and forgotten as Emily grew up. Stinky Pete tells Woody that Andy will also throw him away when he grows up. Woody warms up to the idea of being forever adored by children in the museum and decides to stay.
Meanwhile, Buzz and the other toys reach the local Al's Toy Barn store across the street from Al's apartment. Shortly after splitting up with the other toys, Buzz encounters a newer Buzz Lightyear action figure who (like the original Buzz from the first film) believes himself to be a real space ranger. The two Buzzes fight, but Buzz #2 overpowers Buzz #1 and ends up being mistakenly taken by the others in their search for Woody. Buzz #1 chases after the team, inadvertently letting loose an action figure of Emperor Zurg, Buzz's arch-nemesis, who sets out to destroy him. Buzz catches up with the others as they find Woody and attempt to take him back home, but Woody refuses to go. Buzz reminds him that toys are meant to be played with by children. Woody returns to his senses and convinces Jessie and Bullseye to come with him to become Andy's toys, but Stinky Pete, seeing the museum trip as his only chance to become immortal since he was never sold, breaks out of his box and separates Woody, Jessie, and Bullseye from the others.
As Al packs up Woody with the rest of the merchandise and drives off to the airport to ship them, Buzz #1 and the team hijack a Pizza Planet delivery truck while Buzz #2 remains behind to keep Emperor Zurg occupied. In the baggage-handling area of the airport, Stinky Pete faces off against Buzz and Woody, ripping Woody's arm again in the process, but is distracted by the other toys and stuffed in a little girl's backpack to be taken in and played with. Jessie ends up being boarded on the airplane for Japan, but Woody, Buzz, and Bullseye manage to save her just before the plane lifts off. The toys return home just before Andy comes back from camp and fixes Woody's arm. The toys also learn that Al's business and mood have sharply declined due to his failure to sell the merchandise. As the new toys settle down with their status as Andy's toys, Woody and Buzz accept the fact that Andy will eventually grow up, but they will still have each other.
