Wild Arms 2 is not a direct sequel to the first Wild Arms, although it is set in the same fictional world Filgaia, which combines elements of Old West, steampunk, and fantasy. The turn-based combat system against randomly appearing enemies resembles that of the predecessor, featuring techniques unique to each character, as well as the Guardian system, which allows the characters to summon powerful creatures to assist them in battles. Three combatants can be used actively in battles; the player can also switch any of them with a reserve character, up to six altogether.

One thousand years earlier, a great Blaze of Disaster swept the land of Filgaia. The cause was a demon known as Lord Blazer. Many heroes tried to defeat him and failed, until a girl holding the magic sword Argetlahm stepped forth and did battle with him, ultimately managing to defeat him. However, she could not kill him; rather, she exchanged her life in order to seal Lord Blazer away forever. The girl's name was forgotten by time, and she became known as simply the Sword Magess.

In the present day, Filgaia is a desolate land, dying steadily. Much of the world has already become desert, and the few areas of greenery left are steadily declining. Ashley Winchester, a member of a military unit near Meria Boule, becomes involved in the fate of the world when his group is involved in a demon summoning experiment. This experiment is conducted by the sinister organization of Odessa in order to resurrect Lord Blazer - or so it seems. After all of his friends and comrades have been possessed by demons, Ashley is finally taken over as well. After killing all of his former comrades, he claims the legendary Argetlahm, which had been brought to the summoning ceremony as a relic. After coming into contact with it, he confronts both the demon inside him, Lord Blazer himself, and the wielder of the sword, the Sword Magess. Managing to repress Lord Blazer for the time being, Ashley escapes back to his home town of Meria.

However, this is not the end of it for Ashley. He soon receives an offer from a mysterious man named Irving to join an elite team of fighters named "ARMS" (Agile Remote Missions Squad)/(Awkward Rush and Mission Savers). After accepting, Ashley meets the other two people selected for ARMS - Lilka Eleniak and Brad Evans; one an ex-war hero turned criminal, one a girl in training to be a Crest Sorceress. Irving reveals his plans to them: he wishes to combat Odessa, which he claims will make its presence known to the world soon. The three protagonists engage in a series of events that eventually come to involve the fate of the world of Filgaia itself.