General Morden, the antagonist from the first game is back once more with his army, bent on taking over the world. It is up to the Peregrine Falcon squad, who are now joined by two new characters: Eri Kasamoto and Fiolina Germi of the Sparrows Intelligence Unit, to save the day.
As the levels unfold, it turns out that Morden has allied with Martians to help facilitate his plans. In the final level of the game, the tables are turned when Morden comes under attack and is betrayed by his Martian allies and taken prisoner by them. An ad-hoc alliance is formed between the Peregrine Falcon squad and General Morden's army to combat the greater alien threat. After a long battle, they succeed in defeating the Martians' Mothership, driving them off the Earth. Morden seems to have fallen from the ship, strapped to a solid iron plate. While his soldiers celebrate, the plate loses its balance and crushes him.