Three years after the first film, Stuart Little questions his ability after a disastrous soccer match alongside his brother George, who accidentally kicked him with a soccer ball. He grows more discouraged after accidentally breaking George’s model airplane. Stuart’s father, Frederick, tries to encourage him, telling him that “every cloud has a silver lining”.
Later, a canary named Margalo falls into Stuart’s car on his way home from school. Margalo is secretly assisting a peregrine falcon named Falcon to steal from households upon earning the homeowners’ trust. Orphaned as a child, Margalo assists Falcon in exchange for a home. However, when Stuart offers to let her live with the Littles, Margalo grows reluctant to steal from them. Unable to concentrate on her assignment for Falcon, Margalo becomes close friends with Stuart. Falcon eventually loses patience and threatens to eat Stuart unless Margalo gives him Mrs. Little’s ring. Concerned for Stuart’s safety, Margalo steals Eleanor Little’s wedding ring.
When the Littles discover that the ring is missing, they think it has fallen down the sink drain. Stuart offers to be lowered down the drain on a string to get it, but the string breaks while he is down the drain. A guilt-stricken Margalo saves him, then leaves the Little house the following night to protect Stuart. Upon realizing Margalo’s disappearance, Stuart assumes she has been kidnapped by Falcon and decides to rescue her with the Littles’ cat Snowbell. Running away from home, Stuart asks George to lie about his whereabouts to his parents while he is gone.
With the help of Snowbell’s friend Monty, Stuart and Snowbell discover that Falcon lives at the top of the Pishkin Building. There, Stuart discovers that Margalo stole his mother’s ring. When Margalo tries to reassure Stuart that she really is his friend, Stuart begs her to come home with him. Unwilling to lose his asset in Margalo, Falcon then attempts to kill Stuart by dropping him from the top of the building. However, Stuart lands in a passing garbage truck. Falcon traps Margalo in a paint can as punishment for being Stuart’s friend, but Snowbell manages to reach the top of the building while Falcon is absent and releases her.
Regaining consciousness on a garbage barge, Stuart feels like giving up until he finds George’s broken model airplane, which he fixes using material on the barge and uses to return to Margalo. Meanwhile, the Littles discover that George has been lying about Stuart’s whereabouts and demand to know where he is. George tries not to break the promise, but when Frederick tells him that Stuart’s safety matters more, George tells them that he is at the Pishkin Building and the family head out to the location. As Falcon is about to kill Snowbell, Margalo declares her independence from Falcon and attempts to flee from him with Eleanor’s ring. Before Falcon can catch up, Stuart catches Margalo in his plane.