The story begins InMediasRes with Guybrush Threepwood halfway down deep rocky chasm, dangling in the air from a rope while holding onto a heavy chest. Elaine suddenly appears rappelling from above. She asks Guybrush how he got into this mess, and Guybrush begins to tell her the full story.

After defeating [=LeChuck=] in the previous game, Guybrush has found a new adventurous goal: To discover the legendary treasure of Big Whoop. His search has brought him to Scabb Island; However as he makes his way into the local port Guybrush is assaulted by a man called Largo [=LaGrande=], who robs him blind. Speaking with the locals, Guybrush learns that Largo is one of [=LeChuck's=] old henchmen who is now preventing any pirates from sailing off Scabb Island.

Exploring the local swamp, Guybrush discovers the local residence of the Voodoo Lady from the first game. She expresses her desire to get rid of Largo, and suggests creating a kewpie doll in his likeness. Guybrush must collect several bodily samples of Largo for her to make the doll.

Guybrush digs up the grave of Largo's ancestor at the local cemetery, to get a bone sample. He steals a wig from Largo's cabin for some hair, and collects Largo's spittle at the bar for a phlegm sample. Finally, he puts a bucket of mud over Largo's cabin door, which falls on Largo as he enters. Largo to sends his clothes to the dry cleaner's, and Guybrush tricks the laundry man to give him Largo's... bra. With these items, the Voodoo Lady creates a kewpie doll in Largo's likeness.

Guybrush confronts Largo in his cabin and uses the doll to inflict pain on him. When Guybrush identifies himself as the man who defeated [=LeChuck=], Largo is incredulous and demands proof. Guybrush foolishly pulls out [=LeChuck=]'s still-living beard, which Largo quickly snatches and absconds with.

With Largo gone from Scabb Island, Guybrush consults with the Voodoo Lady about Big Whoop. She reveals that Big Whoop was buried by the pirate crew of Captain Marley, Elaine's grandfather. Four of the pirates who buried the treasure held four pieces of the map that leads to its location. The Voodoo Lady hands Guybrush a book detailing their names and estimated locations. Guybrush looks for a ship to take him off Scabb, but finds only one working ship belonging to Captain Dread. Unfortunately, Dread won't set sail without the necklace worn by his old navigator who was eaten by cannibals on Monkey Island. He also requires some money to finance the voyage.

To get the money, Guybrush constructs [[a trap]] to catch a rat on the docks, sneaks into the kitchen at the local tavern, and throws the rat into the vichyssoise. He then orders some soup at the counter. When the barkeep sees the rat swimming in the soup he fires his cook and hires Guybrush in his stead (providing a hefty down-payment). Guybrush then steals the monocle of the local cartographer, Wally, and hands this to Dread as a replacement for the necklace. With this, Dread finally agrees to set sail from the island.

As Dread's ship sails away, a cutscene reveals that Largo has made his way to [=LeChuck's=] fortress island somewhere in the Caribbean, where his beard is used to bring [=LeChuck=] back to "life" as a zombie pirate.
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!!Tropes:
* BoxAndStickTrap: Guybrush uses one of these to catch the rat hanging out around the Men of Ill Repute.
* BucketBoobyTrap: Guybrush dumps a bucket of mud on Largo using this trick, so he can get Largo to visit the laundry and Guybrush can get "something of the thread".
* ContinuityNod: Guybrush runs into the Men of Ill Repute from the previous game on Scabb Island.
* CreepyCrossdresser: The "something of the thread" from Largo turns out to be a pearly white brassiere.
* HowWeGotHere: The game opens with Guybrush dangling over a pit holding a treasure chest, and when Elaine shows up he explains to her how he got into this situation.
* NiceJobBreakingItHero: Guybrush foolishly shows off [[BattleTrophy LeChuck's beard]] to Largo, who steals it so he can resurrect [=LeChuck=].
* ShakeSomeoneObjectsFall: Largo literally shakes Guybrush down in order to take his vast wealth.
* TakeThat: When Largo informs Guybrush that there are no police on Scabb Island, one of Guybrush's possible responses is "Then who [[DonutMessWithACop eats all the donuts]] and [[PoliceBrutality roughs up transients]]?"
* TamperingWithFoodAndDrink: In order to get hired as the new chef at the local tavern, Guybrush puts a rat in the vichyssoise the chef is making to get him fired.

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