The Lambert family from the first movie moves in with the mother (Barbara Hershey) of the husband following the events of that film. But she has a secret. In the opening scene, which takes place in the early 80's, we learn that her son was having nightmares and speaking to ghosts. She hired Elise Rainier (Lindsay Seim portrays the younger Elise while Lin Shaye reprises her role as the older version) to investigate--and then to make his memories go away. That's why he has no recollection of this as an adult. And it explains that his ability was passed on to his son. The husband, Josh Lambert (Patrick Wilson) becomes possessed by the spirit of a serial killer. And there's also the ghost of the killer's insane mother. A lot of it, particularly the journey on the spirit side of things, reminded me of the original NIGHTMARE ON ELM STREET series.
I thought some of the twists were interesting, particularly the time-travel aspect of one of them, and the attempt this movie makes as both a prequel and a sequel to the first. But the last scene, which is clearly a way to continue this movie as a series of direct-to-DVD sequels, pissed me off. I disliked this sequel as much as I loved the first movie. This is a very disappointing sequel.