Long ago, the evil wizard Lizardo sent an army of monsters to subjugate the land and its people. Lizardo succeeded, but a prophecy tells of a comet that will fall to Earth, and a man who will wield a weapon that will free the people from Lizardo's tyranny. Flavio is a blacksmith content with living a quiet, uneventful life in a town mostly untouched by Lizardo's evil. But when the comet of prophecy lands on the outskirts of town, Flavio's destiny is immediately made clear. Around the peace-loving but brave Flavio. His arch-enemy Lizardo attempts to ruin the peace and harmony of their dwelling place, affecting the inhabitants. Moreover, the evil warlord challenges Flavio by capturing his beautiful lady love Maria. A series of events take place, bringing the blacksmith (panday) at the forefront of a full-blown war against Lizardo's troops.

Ang Panday 2 begins with Flavio/Panday (Revilla) and Maria settling in the peaceful and quiet town of Matandang Kahoy. All is well until Lizardo returns and captures Maria. On his quest to save his lady love, Flavio crosses paths with Ariana whose father had been killed by Lizardo. As the two join forces, Ariana finds herself falling for Flavio. All this happens in a magical world filled with dragons, fairies and other mythical beings. According to Director Carlo J. Caparas who penned the story, the King of Philippine Movies himself, the late Fernando Poe Jr., would be impressed with the production of Ang Panday 2. FPJ had starred in the original Panday films, and had long been associated with the beloved Pinoy komiks character.