British spy Finn McMissile infiltrates an oil rig owned by a group of lemon cars to rescue a fellow spy. He witnesses the lemons, seemingly led by Professor Zündapp, load an electromagnetic pulse emitter, disguised as a camera onto a shipping crate. After finding out the agent he came to rescue is dead, he flees and fakes his death.
Lightning McQueen is now a four-time Piston Cup champion after the recent death of his mentor Doc Hudson, and returns to Radiator Springs. However, Italian formula race car, Francesco Bernoulli, challenges McQueen to race in the newly created World Grand Prix, led by its creator Sir Miles Axlerod, who intends to promote his new environmentally friendly fuel, Allinol. McQueen and his best friend Mater — along with Luigi, Guido, Fillmore, and Sarge — depart for Tokyo for the first race of the Grand Prix.
At a World Grand Prix promotional event, Mater makes a scene after leaking oil and eating a bowl of Wasabi, angering McQueen. While cleaning up, Mater interrupts a fight between American spy Rod "Torque" Redline (whom McMissile and his new partner Holley Shiftwell attempt to meet) and lemons Grem and Acer. Redline passes his information to Mater. Meanwhile, Redline is captured and killed by Professor Zündapp, who reveals that Allinol combusts when hit with an EMP pulse. Zündapp informs his superior, an unknown mastermind, that Redline passed on his information. Holley mistakes Mater to be Redline and recruits him to help foil Zündapp's plot.
At the first race, three cars are ignited by the camera. McQueen places second in the race after Bernoulli, due to Mater accidentally giving him bad racing advice while evading Zündapp's henchmen with help from Holley and Finn. McQueen snaps at Mater, who is abducted by Finn while attempting to return to Radiator Springs. After traveling to Paris to collect more information from Finn's old friend Tomber, they travel to Porto Corsa, Italy, where the next race is being held.
During the race, Mater infiltrates the criminals' meeting, just as the camera is used on a few more cars, causing a multi-car pileup, while McQueen finishes first. Due to increased fears over Allinol's safety, Axlerod lifts the requirement to use it for the final race. However, when McQueen decides to continue using it, the criminals plan to kill McQueen in the next race in London. This spooks Mater, causing him to blow his cover and allowing him, Finn, and Holley to be captured.
Mater, Finn, and Holley are taken to and tied up inside Big Bentley, where he admits to them that he is not the spy they think he is. Mater learns that the camera did not function on McQueen, but the criminals tell him they planted a bomb in his pits as a backup plan, spurring him to break free and escape. Finn and Holley escape soon after but realize that the bomb is on Mater's air filter. Mater had already arrived at the pits when they tell him this, so he flees down the racecourse while McQueen chases after him to apologize for his earlier outburst.
Finn apprehends Professor Zündapp while he attempts to escape. The other lemons arrive and outnumber Finn, Holley, Mater, and McQueen, but they are soon rescued by the arrival of the other Radiator Springs residents. Mater and McQueen go to Buckingham Palace, where Mater reveals Axlerod as the mastermind behind the plot by forcing him to disable Mater's bomb. It is revealed Axlerod had major investments in crude oil, which would have surged in value once the failure of Allinol disgraced the idea of environmentally friendly fuel. After Axlerod is arrested, Mater receives an honorary knighthood from the Queen. In the end, McQueen forgives Mater and allows him to come to all of his races if he chooses.