Many years after the first film, Charlie Barkin remains in Heaven as an angel and waits for the new dogs to arrive in Heaven, one of whom being Charlie's best friend, Itchy Itchiford, who died while choking to death on a chicken drumstick. Charlie welcomes Itchy into heaven and shows him around, but reveals that he's been bored in Heaven since his death (It's Too Heavenly Here) and wishes to return to Earth. Then Charlie's old nemesis, Carface Carruthers, secretly steals Gabrielle's Horn and causes it to fall from Heaven to Earth, and Carface secretly escapes from Heaven to Earth. Annabelle, the Head Angel, sends Charlie and Itchy to Earth to retreive the horn and gives them one miracle to use while on Earth.
Once on Earth, Charlie and Itchy arrive in San Francisco and Charlie begins exploring a dog tavern, where he notices a singing Irish Setter dog named Sasha La Fleur and falls in love with her. He tries to get her to notice him, but she can't see nor hear him because he's a ghost. Then Charlie spots Carface with a red collar around his neck that makes him visible. He tells them he got the collar from a dog named Red, who would probably be happy to give some to Charlie and Itchy as well. They follow him to Red's place, where Carface introduces them to Red, who gives them each a collar, making them both visible, though he tells them the collars will only work until sundown tomorrow and then they will be ghosts again. After Charlie and Itchy leave, it is revealed that Red is actually a cat/devil disguised as a dog and hired Carface to steal Gabrielle's Horn so he can imprison all dogs from Heaven and rule the world.
Charlie and Itchy go back to the tavern and introduce themselves to Sasha, who takes them to her home and shows them a little boy named David, who has run away from home. Charlie and Itchy ask them to help them find Gabrielle's Horn.
- Charlie Sheen as Charlie B. Barkin, the main protagonist. He returns from Heaven to retrieve Gabriel's Horn. It is revealed that as a youngster, he ran away from home, a point he mentions to David to convince him to return home. (singing voice by Jesse Corti)
- Dom DeLuise as Itchy Itchiford, the dueteragonist and Charlie's best friend. He only wants to do what he was sent to do and go back to Heaven.
- Ernest Borgnine as Carface Carruthers, the tritagonist and Charlie's old nemesis, who becomes a servant to Red through a deal between them.
- Sheena Easton as Sasha La Fleur, one of the two tetartagonists and a serene lounge singer and Charlie's love interest.
- Adam Wylie as David, one of the two tetartagonists and a lonely 8-year-old human boy and Sasha's owner. He believes that Charlie and Itchy are his guardian angels sent to get him back home.
- George Hearn as Red, the sole main antagonist and a powerful cat-like monster and the main antagonist. He wants to imprison the dogs of Heaven and drag them into Hell. To manipulate his victims, he disguises himself as an elderly dog through his ability to transform (shapeshifting). He has bright red fur in his true form and red skin and clothing in his dog form, hence his name.
- Bebe Neuwirth as Anabelle, the archangel dog in Heaven. She summons Charlie and Itchy to retrieve Gabriel's Horn.
- Hamilton Camp - Chihuahua He waits for dogs especially a dog who puts on some weight to be healthy called Fluffy.
- Dan Castellaneta - Tall Customs Dog
- Pat Corley - Officer McDowell
- Jim Cummings - Jingles, a Yorkshire Terrier who got kicked out of the sing-off, but was given the 1st place bone by Sasha.
- Bobby Di Cicco - Tom
- Annette Helde - Claire
- Marabina Jaimes - Officer Reyes
- Tony Jay - Reginald
- Maurice LaMarche - Lost & Found Officer
- Steve Mackall - Short Customs Dog
- Kevin Michael Richardson - Ace the St. Bernard and Officer Andrews
- It's Too Heavenly Here (Jesse Corti)
- Count Me Out (Sheena Easton)
- My Afghan Hairless (Jim Cummings)
- It Feels So Good To Be Bad (George Hearn and Ernest Borgnine)
- On Easy Street (Jesse Corti, Adam Wylie & Dom DeLuise)
- I Will Always Be With You (Movie) (Movie - Sheena Easton & Jesse Corti)
- I Will Always Be With You (End Title) (End Title - pop version - Helen Darling and Danny Frazier)