The game picks up a couple of years after the first Just Cause, with Agency operative Rico Rodriguez being dropped into Panau, a fictional island nation in the Malay Archipelago of Southeast Asia. Formerly a US ally, Panau is ruled by Pandak "Baby" Panay (the son of the former leader, US-friendly "Papa" Panay, whom Baby Panay is suspected to have murdered) who institutes a harsh, oppressive dictatorship and cuts off all ties to the US. Rico's mission is to oust Panay from office, as well as track down and assassinate his old mentor, Tom Sheldon, who the Agency fears has gone rogue after disappearing during the regime change. In order to find Sheldon, Rico allies himself with the three dominant criminal gangs on the island: the Roaches, an organized crime syndicate, the Reapers, a communist revolutionary army and the Ular Boys, an ultranationalist tribe opposing foreign influence. He eventually gathers enough information to track down Sheldon, who not only reveals that he's been investigating a larger conspiracy behind Panau, but that he is in fact the "Sloth Demon", the Black Market dealer that often calls Rico to give information on the gangs and that Rico calls to be provided with weapons and vehicles (with "Sloth Demon" being an anagram of "Tom Sheldon"). Rico establishes that Sheldon has not gone rogue, and Sheldon tells him to continue causing chaos on Panau while he goes to explain the situation to the Agency.
After clearing everything up, Sheldon suddenly demands that Rico quickly make his way over to his hideout. They tell him that Jade Tan, a mysterious Agency asset whom Rico had met earlier, has been caught in Panay's military base, and is to be tortured and possibly killed without questions. Rico heads to rescue her, and destroys the base where she is held. However, Jade is bundled into a truck and a fleet of gunmen attemptto make a getaway along a frozen lake. En route, a nuclear submarine emerges from the ice, but Rico hijacks the truck carrying Jade, and they are both airlifted to safety by Sheldon and Kane (another Agency operative who was with Rico in his insertion in Panau at the beginning of the game.) Later, Jade reveals that the Roaches, Reapers, and Ular Boys are secretly being supported by benefactors of Russia, China, and Japan respectively in an effort to bring down Panay, and Rico and Sheldon wonder what the small nation that is Panau has that is able to attract such dominant superpowers. Nonetheless, Rico and Sheldon track down the foreign intelligence officers liaising with the factions and assassinate them. Soon after, the island is amidst so much chaos that Panay is forced to leave the capital and take refuge in his fortified military base. Enlisting the aid of the factions, whether it be from the Ular Boys, Reapers, or the Roaches, Rico assaults Panay's hideout, but all of Rico's followers are killed during the raid. Panay is apparently killed during the assault by Karl Blaine in a murder-suicide (Karl believed that Jade Tan was dead, even though she wasn't), and Rico discovers that Russia, China, Japan, and the US have been secretly fighting over Panau for its oil supply, which is supposedly therichest in the world.
With Panay dead, the situation in Panau turns into a free for all as foreign nations scramble to claim the oil. Russia, China, and Japan send a fleet of supertankers to Panau, while the US begins scrambling military forces to defend the island. Rico is tasked with holding off the supertankers until reinforcements arrive. However, a massive nuclear submarine suddenly surfaces from the sea. Rico investigates the submarine and discovers Panay, who is still alive but injured from Karl Blaine's suicide attack. Panay proceeds to fire four nuclear missiles at Russia, China, Japan, and the US, but his clothing is accidentally snagged on one of the missiles and he is hauled off with it. In pursuit, Rico grapples onto one of them and both men battle in mid air as Rico disarms each missile one by one. Finally, on the US missile, Rico pins Panay into the exposed missile core and reprograms the targeting computer before leaping to safety. The final missile changes course and explodes over Panau's oil fields, killing Panay and destroying Panau's massive oil reserves. Rico reunites with Sheldon, Kane and Jade, who express their dismay at this decision as the oil was worth millions, but Rico explains that the oil is not worth dying over, and now that it's destroyed, all interest in Panau will be lost, preventing a war between the major superpowers and sparing the innocents of the island. Sheldon agrees, and assures Rico that a US-friendly president will be installed on Panau, and that the nation will be closely monitored. The group raise their glasses, to good friends, and a job well done.
