Ning Choi-san, a timid debt collector, goes to a rural town to collect debts but fails and runs out of money. He has no choice but to take shelter in a deserted temple in the forest on the outskirts of the town. That night, he meets a beautiful and alluring young maiden, Nie Xiaoqian, and falls in love with her. In the morning, however, after he recalls that night's events, he becomes increasingly fearful and superstitious because Yin Chik-ha, a Taoist priest, told him that the people he saw in the temple are ghosts. That night, he returns to the temple and confirms his theory that Nip is actually a ghost.
Following the events of A Chinese Ghost Story, Ling Choi Sin (Leslie Cheung) returns to his hometown and, while fleeing from cannibals, gets himself imprisoned. With the help of his cell mate, scholar Elder Chu (Feng Ku), Sin escapes and then finds himself crossing paths with rebel sisters Moon (Michelle Reis) and Windy (Joey Wang), who bears a strong resemblance to his beloved tragic ghost, Lip Siu Sin. The sisters' mission is to free their framed imprisoned father Lord Fu (Siu-Ming Lau) from a convoy and joins forces with Sin and Autumn, a Taoist monk (Jacky Cheung). While waiting for the convoy to reach their shelter at an abandoned villa, a demon within the building is awakened.
Two Buddhist monks, the master Bai Yun and his inept disciple Shi Fang are transporting a golden idol of Buddha. On their travels they meet the relatively honorable mercenary Yin. Beset by thieves and ne'er-do-wells in the villages, the monks opt to spend the night at the local temple, which is none other than the Orchid Temple of the first film. Over the next few nights, Shi Fang is visited by Lotus and the two become fond of each other.