Jerusalem, Israel. One week after the burial of Robert and Katherine Thorn (in the first Omen movie), archeologist Carl Bugenhagen (Leo McKern) asks his friend Michael Morgan (Ian Hendry) to deliver a box to the guardian of Thorn's young son, Damien. He reveals that Damien is the Antichrist and that the box contains a warning and the means to kill Damien. As Morgan is unconvinced, Bugenhagen takes him to the ruin of Yigael's wall, showing him an ancient depiction of the Antichrist with Damien's face. Morgan is convinced, but the two are buried alive as a tunnel collapses.

Seven years later, 12-year old Damien (Jonathan Scott-Taylor) is living with his uncle, industrialist Richard Thorn (William Holden) and his wife, Ann (Lee Grant) at a large house outside of Chicago, Illinois. He gets along well with his 15-year-old cousin Mark (Lucas Donat), Richard's son, with whom he is enrolled in a military academy. However, he is despised by Aunt Marion (Sylvia Sidney), who favors Mark and thinks Damien a bad influence, even threatening to cut Richard out of her will if he does not separate the two boys. The same night, the appearance of a raven wakes her up and causes a fatal heart attack.

Through a friend, Dr. Charles Warren (Nicholas Pryor), who is the curator of the Thorn Museum, Richard is introduced to journalist Joan Hart (Elizabeth Shephard), who was a colleague of Keith Jennings (from the previous film). Having seen Yigael's Wall and drawing a link to all the deaths that surrounded Damien, including Jennings', Joan tries to warn Richard but he throws her out of his limo. After a confrontation with Warren and Ann Thorn at the Thorn Museum, Joan became unsure on whether Damien's face matches the painting on Yigael's Wall. Joan goes to meet Damien at his school, but when she sees his face she drives off in panic. On the road, her car mysteriously dies down. When she gets out of the car, she is attacked by a raven, which pecks her eyes out, causing her to be run over by a passing truck.

A few months later at Thorn Industries, manager Paul Buher (Robert Foxworth) suggests expanding the company's operations into agriculture; however, the project is shelved by senior manager Bill Atherton (Lew Ayres), who calls Buher's intention of buying up land in the process immoral. At Mark's birthday party, Buher introduces himself to Damien, invites him to see the plant, and also speaks of his approaching initiation.

Buher seemingly makes up with Atherton, who drowns after falling through the ice at a hockey game on a frozen lake the following day. The black raven again makes an appearance at the scene. A shocked Richard leaves on vacation. As Richard agrees to the agriculture project in principle and leaves Buher in charge of the company, Buher then initiates plans on his own... revealing himself to be some kind of follower of Satan. Buher plots to buy up land in various Third World countries and use the weapon of famine to sell to the people the bought up crops at high prices.

Meanwhile at the academy, Damien's new commander, Sgt. Dan Neff (Lance Henriksen), takes the boy under his wing and warns him not to draw any attention on himself until the right moment. He also points him to the Bible's Revelation, Chapter 13, in which Damien reads about the beast. Finding its number, 666, scarred onto his scalp, he flees the Academy grounds in a terrified panic, distraught at being chosen as the vehicle for Satan's will.

A few days later, David Pasarian (Allan Arbus), an engineer at Thorn Industries, alerts Buher that some people were murdered after having refused to sell their land. Pasarian intends to inform Richard about his suspicions about Buher, but on the very next day, some chemical machinery explodes and releases toxic fumes, killing Pasarian and his assistant, and injuring Damien's class, who were visiting the plant. Damien alone does not suffer damage, but is taken to hospital as a precaution.

A doctor named Dr. Kane (Meshach Taylor) investigates to why Damien was not affected by the chemicals. After taking a blood sample and examining it, Dr. Kane discovers that Damien's blood cell structure resembles that of a jackal. But before the baffled doctor can report this to anyone else, the unseen forces of darkness dispose of him too in another gory freak accident when he is cut in half by a falling elevator cable.

Meanwhile, Bugenhagen's box has been found in the ruins and delivered to the Thorn Museum. When opened by Dr. Charles Warren, it contains the Seven Daggers of Meggido, the only weapons able to kill Damien, and the letter from Bugenhagen explaining that Damien is the Antichrist. Charles rushes to inform Richard as well as give him Bugenhagen's letter. But Richard angrily refuses to belive this and throws him out of his house. The next day, Richard confides in Anne with the letter after having read it, but she convinces him not to believe it.

Mark, who overheard Richard's altercation with Charles, confronts Damien in the nearby forest, who first reluctantly and then proudly admits to being the Devil's son. Damien tries to convince Mark that he truly cares for him as his brother and asks Mark to join him, but Mark refuses. Damien kills Mark by introducing an aneurysm into his brain.

Shaken by his son's death, Richard follows Charles' invitation to New York City. A half-crazy Warren takes him to Yigael's Wall, stored in a cargo carrier at a local railroad yard, on which Richard sees Damien's image. Immediately afterward, a switching locomotive hits the carrier, impaling Charles and destroying the wall, finally convincing Richard beyond doubt that Damien is the Antichrist.

Upon his return to Chicago, Richard has Damien picked up from a ceremony at the academy and argues with Ann about Damien. As they find the daggers in Charles' office in the Thorn Museum, Ann uses them to kill Richard, proclaiming that she "always belonged to him". Ann is then engulfed by a fire, caused by Damien who overheard the altercation from outside. Damien, now the sole heir to Thorn Industries, exits the museum and is picked up by a driver as the fire department arrives. With all his enemies dead and under the tutulage of Satan's unholy disciples of Sgt. Neff and Paul Buher, it is clear that Damien is now on his way to becoming a world figure in controlling the world for the Devil.