The opening scene shows a mutant by the name of Nightcrawler attempting an assassination on President McKenna. After a lengthy battle with Secret Service agents, he is shot and disappears, leaving behind a knife with a tag that reads "Mutant Freedom Now!"
Wolverine finally reaches Alkali Lake, the facility used for experiments on mutants like him. He finds nothing but an empty dam. Meanwhile, the mutants of "Xavier's School for Gifted Youngsters" visit a museum. Jean Grey is confronted by Cyclops after she demonstrates her lack of focus. She confesses to him that she has been having bad feelings about the future. In the food court, Iceman, Rogue and Pyro engage in an altercation with two other young men. After Pyro sets one of the boys' clothes on fire and Iceman extinguishes him, everyone in the museum freezes as if time has stopped. Only the mutants are unaffected. Professor Xavier wheels in, unamused by the situation, lectures Pyro on "showing off" and decides that it is time to leave.
Wolverine reappears at the School for the Gifted and is immediately asked to "babysit" the children of the school. After some difficulty, Professor Xavier locates Nightcrawler with Cerebro and sends Storm and Jean to retrieve him. They find Nightcrawler in a church and he willingly comes along with them, explaining that the entire time he was in the White House, he had no control over his actions. Meanwhile, Cyclops and Professor X visit Magneto in his plastic prison to see if he had any part in the attack on the President. While reading Magneto's thoughts, Professor X discovers that a covert government operative, William Stryker, has been extracting information from Magneto. During their conversation, a trap is sprung and Cyclops and Professor X are captured. Wolverine awakens to night
Wolverine awakens to nightmares of his first memories and heads to the kitchen. While conversing with Iceman, a military invasion of the school begins. The soldiers attempt to sedate every mutant they find with tranquilizer guns. A soldier tries to capture Iceman in the kitchen, but Wolverine sneaks up behind him; as they grapple the soldier tries to shoot Wolverine with a real gun but only succeeds in emptying his automatic rifle's clip into a wall, before Wolverine stabs him through the chest. The noise of this shooting rouses Siryn, who sees more soldiers entering her own room and wakes everybody else up with one of her sonic screams. Colossus and Wolverine round up a number of the students. Wolverine stays behind to confront the attackers, but is shocked to discover that they are being led by William Stryker. Stryker, himself surprised to see Wolverine in the mansion, reveals that he knows much about Wolverine and wishes for him to come with the military to discuss it. Before Wolverine answers, Iceman is able to create an impenetrable wall of ice between them. The kids persuade Wolverine to come with them, to protect them.
In the meantime, Mystique has been posing as Senator Robert Kelly and also Stryker's assistant Yuriko Oyama in order to obtain information about Magneto's prison. At a bar she eventually manages to trick one of his security guards and drugs him, and injects something into him. When the guard later arrives at the prison, Magneto extracts the contents of Mystique's injection; Mystique had injected him with liquid iron and Magneto is able to create small balls of metal, which he uses to destroy his prison and escape.
Wolverine and the kids (Pyro, Iceman and Rogue) head to Iceman's home in Boston. Iceman gives Rogue some of his mother's clothes, which she can wear instead of her nightdress. As she removes her dress, Iceman looks away, but can't help turning back. Pyro looks at the family pictures with a hint of resentment, indicating he had probably come from a dysfunctional home. When Rogue has changed clothes, Iceman kisses her, after saying that "you won't hurt me" (due to the fact that she can kill people by touching them). The first kiss only results in Rogue absorbing Iceman's freezing powers. But when they share a longer and more passionate kiss, Iceman's life starts leaving him. After an awkward meeting between his parents and Wolverine, Iceman decides to tell his parents (who believe he has been going to a boarding school) that he is a mutant. His parents are shocked to learn the truth, especially when their son demonstrates his power by freezing a cup of tea. During the discussion, Iceman's disgruntled brother runs upstairs and calls the police, telling them that mutants are holding his family hostage. Wolverine meanwhile receives a call from Storm who decides to come and pick them up.
Just as the group leaves, the police arrive and draw their weapons on Wolverine and his younger companions. A police officer mistakes Wolverine's claws for knives and orders him to drop them. When Wolverine tries to explain and sheathes his claws, the officer shoots Wolverine in the head. Pyro becomes enraged and begins using his flame-controlling powers to attack the officers and destroy their cars. Just before his attack turns deadly, Rogue grabs hold of him with her bare hand. Pyro falls to the ground, drained of his powers. Rogue then puts out the fires with frost waves which she absorbed from Iceman's kiss earlier. The X-Jet arrives to pick them all up, and Wolverine, now fully recovered thanks to his adamantium skull and healing factor, stands up and the bullet falls out.
During the flight, the X-Jet is targeted by two Air Force fighter jets who attempt to force a landing. After the X-Jet refuses to land, the pilots fire missiles. Storm creates a number of tornadoes in order to lose the aircraft. One plane is unable to maintain control and ejects. The other is able to fire two missiles before ejecting. Storm attempts evasive maneuvers, but quickly loses distance. Jean uses her powers at an unnaturally high level and is able to destroy one of the missiles. Unfortunately the other detonates directly behind the jet, rupturing the fuselage. In the ensuing depressurization, Rogue is pulled out of her seat and out into a free fall. Nightcrawler teleports outside the jet to grab Rogue, then teleports back in, saving her life. The jet, still en route to a crash landing, is stopped at the last moment by Magneto, who is standing on the ground.
Magneto has learned that Stryker orchestrated the attack on the President in order to gain approval to attack the school and has been experimenting on mutants (including Nightcrawler) at a secret base. Jean Grey reads Nightcrawler's mind and determines that Stryker's base is located at Alkali Lake. When Wolverine claims that there is nothing at Alkali Lake, Jean insists that the base is inside the dam. Stryker is able to control mutants with a powerful drug that he has used on Nightcrawler, Magneto, and a number of other mutants, including Lady Deathstrike. He has also stolen enough equipment from Xavier's own Cerebro unit to build a second Cerebro and plans to use Professor X to kill all of the mutants in the world. The X-Men and Magneto join together to stop Stryker. On the way to Alkali Lake, Pyro has a conversation with Magneto about how he's perceived as "the bad guy". When he demonstrates his fire-manipulating abilities, Magneto simply says. "You are a god among insects, never let anyone tell you different."
Stryker gains control over Professor Xavier through his son, Jason Stryker (a former student of the professor), who is able to project powerful visions in the mind, blinding a person to reality. Jason (in the form of a young girl) instructs Professor X to use Cerebro to find all existing mutants and kill them. Magneto, Mystique, and the remaining X-Men stage their assault on the facility, by having Mystique infiltrate disguised as Wolverine. Stryker orders his guards to let "Wolverine" in, as he believes his experiment has finally decided to come home. Somehow Mystique's disguise doesn't fool Colonel Stryker. Mystique quickly incapacitates the soldiers and manages to take control of the control room, opening up the main gates so that the X-Men can enter the Alkali Lake Facility. Storm and Nightcrawler pair off, searching for the kidnapped students. Jean Grey joins Magneto and Mystique in order to keep an eye on them as they attempt to bring Professor Xavier back to his senses and rescue him. On their way, they are attacked by a brainwashed Cyclops. Jean stands her ground against Cyclops in order to buy Magneto enough time to get to Dark Cerebro and stop the coming mutant annihilation. Jean withstands Cyclops' optic blast, reflecting it again at an extremely high level (another partial manifestation of the Phoenix) and both are propelled backwards, causing damage to the generators that keep the dam from collapsing. The destruction of the base is unstoppable.
Wolverine runs off on his own to look for Stryker. He finds Stryker in an adamantium smelting room along with Lady Deathstrike. After Stryker leaves, Wolverine attempts to follow him but is attacked by Deathstrike. A battle of blades ensues, which results in Wolverine pumping Deathstrike full of molten adamantium metal, killing her. Wolverine finds Stryker on a landing pad and stabs him in the stomach. Stryker attempts to bargain with Wolverine, telling him that if he comes with him he can tell him about his past. Wolverine refuses and straps the wounded Stryker to the helicopter wheel, saying that if the X-Men die, Stryker will too.
Magneto breaks into the new Cerebro and uses Mystique, disguised as Stryker, to convince Jason of a "change of plans" - to kill all humans. Magneto and Mystique escape on the helicopter. As they're leaving they see Pyro staring back at them and he decides to join them. Meanwhile, Nightcrawler teleports Storm inside of Dark Cerebro, from where she whips up an arctic snow storm - which freezes Jason, freeing the Professor from his telepathic illusion and in the process, stopping the killings; the destruction of the dam however, is innevitable. As the team prepare to leave, Wolverine revisits Stryker and gets rid of his mutant tag. A malfunction aboard the X-Jet prevents it from taking off and the dam finally bursts. The flood gets stronger, drowning Stryker. Jean Grey leaves the Blackbird and manages to fully tap into the Phoenix Force, allowing her to create a telekinetic wall in order to stop the wave, whilst she raises the jet up and over the flood waters; all the while surrounded by a corona of fire (the Phoenix fully manifesting itself). Nightcrawler attempts to grab her but she blocks his teleportation powers, instead choosing to stay. With her last amount of strength, Jean activates the X-Jet's primary engines, before lowering her telekinetic shield and allowing herself to be consumed by the icy cold flood waters.
Back at the White House, the President prepares to address the country on the perceived mutant threat. Just as he begins his speech, the lights flicker, and the sky darkens and it begins to rain and everyone in the room freezes except for himself. The X-Men appear before him and Storm's eyes are shown white so it is she that has created the storm and made the lights flicker. Rogue gives him the files from Stryker's private offices while Professor X tells him about the events of the last few days, saying that in the files some humans and mutants tried to start a war and there have been casualties on both sides. Then Professor X gives him an ultimatum: either humans and mutants work together to build peace, or they will destroy each other through war. The mutants leave in the same manner they entered. As everyone else in the room returns to motion, the shocked President looks at the files and is uncertain whether to continue his speech.
The film ends with a voiceover by Jean Grey, identical to the voice-over at the start of the initial film, on the process of evolution. The camera floats over Alkali Lake, showing a vague but ominous shape in the water surface, the shape of a burning bird, the Phoenix.