Dollmaker Sam Mullins and his wife Esther suffer the loss of their daughter Bee in a car accident. Twelve years later, Sam has opened his house into an orphanage, though Bee’s old room is kept locked and Esther always stays in her own room after a vaguely referenced other accident. A new group of girls arrives including Janice, whose leg was disabled by polio which forces her to take a slow-moving chair between the house’s floors. She’s good friends with Linda, but is bullied by the other girls Carol, Nancy, Kate, and Tierney.
On their first night, Janice is lured into Bee’s room by notes urging her to “find me” like Bee used to leave, which unlocks as she approaches. She finds the doll which will later be known as Annabelle stuck in a hidden closet, which seems to walk to her after getting a sheet thrown on it, which then falls off and reveals nothing underneath, causing her to run back out, at which the door locks again.
As the girls’ caretaker Sister Charlotte gets Sam to fix her room’s dumbwaiter door which keeps flying open, and shows him a picture of Italian nuns she became friends with, plus the one whose form Valak took in the previous film, Linda is tricked into hide and seek where she goes under the stairs, and also sees the doll briefly before it disappears.
Both girls are drawn back to Bee’s room, and while Linda is scared enough to leave early, Janice stays and sees Bee, who suddenly takes on a demonic appearance and shouts “I want your soul!” Janice tries to get away on the stairchair, only for it to reverse course back up, at which she’s snatched up to the ceiling and then dropped all the way to the first floor, breaking her good leg and leaving her stuck in a wheelchair.
Charlotte takes Janice out into the sun, but as soon as she’s alone a figure dressed as a nun pushes her into a barn, where Bee again appears and vomits into her mouth. Janice appears normal afterwards, but soon approaches Sam and stands up from the wheelchair. He holds a Crucifix towards her, but she psychically breaks all his fingers until he’s forced to drop it, and Charlotte soon finds him with his eyes gouged out.
With Janice now constantly holding the doll, Linda takes it when she falls asleep and throws it in the well, only for a hand to try to drag her in too until she’s saved by Charlotte. They find the doll back in Janice’s bed with the girl herself gone, and Charlotte confronts Esther, who admits she and Sam were duped by a demon pretending to be Bee, and allowed it to possess the doll, also revealing Bee’s real name Annabelle. Soon the demon tried to possess Esther, leading to her paralysis and destroyed face, before they were able to seal it inside Bee’s room until now.
Janice reappears to the other girls, who try to get away in a truck, but are attacked by a scarecrow controlled by the demon. Carol ends up separated inside the barn, where the scarecrow keeps attacking until she’s saved by the others. Inside, Linda discovers Esther’s dead body, which also attacks her until she escapes up the dumbwaiter. Janice comes after her again, but is locked inside the doll’s old cage by Charlotte before they all run outside.
The next day the house is blessed, and the priest declares the evil has been banished, though Janice is discovered to have escaped by knocking a hole through the back wall. She goes to another orphanage and gets adopted by Mr. and Mrs. Higgins, leading to her killing them twelve years later and kicking off the events with John and Mia Form.
