‘Yamla Pagla Deewana 2' comprises of comedy, action & romance. In Varanasi, Dharam Dhillon (Dharmendra) and his son Gajodhar—or Prem (Bobby Deol)—are conning people into thinking that Dharam is a guru named Yamla Baba. When Yograj Khanna (Annu Kapoor) comes from England to meet Dharam, Dharam notices Khanna's diamond rings. Dharam and Gajodhar pretend to own a company, Oberoi, Oberoi & Oberoi. Impressed, Yograj begins to consider a match for his daughter Suman (Neha Sharma). Suman falls in love with Gajodhar, and a marriage is arranged in England when Dharam's older son Paramveer (Sunny Deol)—a loan-recovery agent for a bank—meets Khanna.

Paramveer appears at Khanna's club as Joginder (Dude) Armstrong (Anupam Kher) arrives to take it over, and beats up Armstrong's flunkies and goons. Grateful, Khanna hires him as his manager. Paramveer then finds Dharam and Gajodhar trying to swindle his boss. Dharam and Gajodhar go to a house occupied by an orangutan, Einstein, whose absent owner (a disciple of Yamla Baba) has allowed them to stay there. The next day they go to Khanna's house for Gajodhar and Suman's engagement party, at which Paramveer is a guest. Paramveer meets art-gallery employee Reet (Kristina), with whom he falls in love. After Suman and Gajodhar are engaged, Gajodhar and Dharam discover that Reet (not Suman) is Khanna's daughter.

Although Gajodhar woos Reet, she is interested in Paramveer. Dharam claims to have another child, Prem's twin Q (Deol). When Q meets the Khannas he claims to be a painter, which attracts Reet. Meanwhile, preparations for Prem and Suman's marriage are underway. Reet agrees to marry Q, and Paramveer wants a joint wedding. Dharam tries to convince Suman that Prem is impotent, and anyone who marries him will die in seven months. Despite this, Suman tells Prem that she loves him and Prem falls in love with her. When he goes to tell the truth to the Khannas, Armstrong's goons kidnap him, Dharam and the Khannas. Prem reveals the truth, Param saves everyone from the goons and proposes to Reet (which she accepts), and the film ends happily.