After returning home to Funkotron from Earth, ToeJam and Earl find out that humans hitched a ride on their Rapmaster Rocketship. They are destroying the planet, and ToeJam and Earl are the ones at fault. To fix the situation, the two must capture all of the humans in jars and send them back to Earth where they belong.

Instead of being a top down adventure like the first, ToeJam & Earl 2 is a side scrolling platformer. The duo are also given a certain set of funk powers which will help them with their task. These skills include the ability to walk through walls or see hidden items. The hidden items that must be found are the possessions of Lamont Funkapotamus, the ultimate source for all funk. Like the first game, ToeJam & Earl 2 can be played solo or cooperatively.