A Nightmare on Sesame Street 2 was New Line Cinema and Sesame Workshop's response to the box office success, "A Nightmare on Sesame Street". Directed by Steven Spielberg and the Guy On The Oatmeal Box, the film was declared a failure days after it went into production, back in 1989. In the film, Kevin Bacon reprises his role as Big Bird and Brad Dourif once again plays Elmo. Snoop Dogg plays Oscar the Pimp, and his girlfriend is played by Katie Holmes. Robert De Niro and Joe Pesci reprise the roles of Bert and Ernie.
The story picks up after Bird has destroyed Elmo and saved the day. Big Bird is clear of marijuana and can concentrate on finding his purpose in life. He and the closeted Bert make a startling discovery that everyone they live with is a puppet.
- Big Bird - a lonely man who wants to find out why he deserves to live, and at the same time he tries to balance his social life. He acts more homosexual in this movie, but these rumours are dispelled when he's seen masturbating to a Britney Spears music video (OK, that doesn't prove much, but still).
- Elmo - This unstable freak of nature spends the entire film trying to restrain himself from going insane and murdering everyone.
- Oscar - An old player who wasted all his money on bitches and beer. He lives in the garbage can outside Bert and Ernie's apartment, licking banana peels and used napkins for basic nourishment.
- Bert and Ernie - A formerly gay couple. When they are reborn, only Bert is gay, and he's also back in the closet. Ernie is constantly trying to prove Bert's gay, which usually end in hilarious ways.
- Grover - A Muppet that swims in his own piss.
- George Liquor - An old Republican who tries to manipulate everyone. He succeeds in getting laid and making Bert hang himself.
- Patrick Dempsey - Patrick Dempsey ultimately ruins the movie by telling the ending in a short monologue at the start of the movie.
The film opens in a puppet factory, with a bruised and beaten Big Bird carrying the remains of the neighbourhood denizens. We witness Elmo's body repaired, Bert's head stitched back together and Ernie's graphic penis reattachment. They have a heartwarming reunion after everyone is back in one piece. Elmo serves time in the county jail for his rampage, and Ernie and Bert come to an argument when both turn out to be straight. Bird is just happy everyone's alive.
Suddenly, Bird remembers that Cookie Mobster was left for dead in his castle empire. He races back, but runs over Patrick Dempsey, who is ironically leaving Grey's Anatomy after tending to a car accident victim. Anyway, in his last words, he says, "You bags of fluff will all realise the truth soon...." Big Bird leaves him for dead and continues to the abandoned mansion.
Meanwhile, Ernie brings home a stack of porn and starts masturbating in the living room in front of Bert. Rather than asking Ernie for a porno, Bert stares happily at Ernie's exposed penis. This fuels the rumour of Bert's lingering homosexuality. As Ernie and Bert continue to argue, Bird steps into the mansion, which is full of rotting whores and stale cookies. Finally, on top of a pile of mouldy food and maggots, is the corpse of Cookie Mobster. But as Bird picks him up, a bunch of stale cookies fall out of the body's ass. They are untouched, almost as if they fell straight through his body. Bird is surprised.
In jail, Elmo is given a cup of pudding. It's tapioca, and this upsets him. He takes out his knife and prepares to stab the chef, but luckily he passes out from hunger before he can. He does however stab a guard in the foot doing this, and is given a few extra days. Big Bird gives Bert the body, who examines it.
Big Bird drives home, and meets George Liquor American, who convinces him to hang with some of his buddies at the club. They all drink beer, and on their way home, George has Big Bird introduce him to Oscar, who sets them both up with whores. Big Bird is glad he has a friend again. Meanwhile, Bert examines the body, and Ernie teases him when looking at the whole in Cookie's backside gives him a boner. But once Ernie leaves, Bert shoves his hand up the ass, and his sexual experience ends when his hand goes right through his mouth.
The next day, he tells Big Bird the shocking news. But Bird is relieved, since he is technically a puppet the government can repossess all his stolen goods without a lawsuit from his relatives. But neither Bert nor Bird have any idea how severe this discovery is. That night, Big Bird and George Liquor go for a gamble at the local bar. As Big Bird gets drunk, he gets cocky and bets all his money. When he falls asleep, George takes the money and bails. Bird wakes up to see his friend Grover drunk and hungover on the table. As he helps him up, he sees a yellowish puddle around his ass. Thinking at first he pissed himself, he comes to realise that the beer went right through him without being digested. He must be a puppet like Cookie. Big Bird drops the passed-out Grover on his head and leaves the puppet with a fatal concussion.
Big Bird runs to Bert, and intrudes on him having sex with a gay puppet. (This is where Bird's homosexuality is hinted at, as he stutters and asks him how it's going.) The news shocks Bert and his playmate, and Bert's sex partner dies of a fatal heart attack. Bert asks him to leave, but then goes to spread the news. Many puppets who find out end up killing themselves (I mean, it's not really suicide if they weren't alive in the first place, right?) George Liquor's bitch also kills herself, and his conservative views drive him to avenge the bitch by committing a gay hate crime. He taunts Bert that being gay is a sin and is only causing trouble, and that he's responsible for countless suicides. Conveniently, Bert commits suicide, but not before denying one more time that he's gay.
Bird and Ernie go reveal the news to Oscar. Oscar doesn't care and keeps fucking. But suddenly a garbage truck comes by and dumps the little bastard and his home into the grinder. The two have one last person to tell, and they'd better hurry because he would surely be dangerously mad if he found out on his own: Elmo.
Big Bird and Ernie have a very entertaining break-in on the jail, and then they chase down Elmo. When the tell him, he becomes enraged and pulls out a machete. He chases them around the hospital, and the two run down into the boiler room, where several inmates work. Elmo continues to crawl over prisoners to get to them, but finally a pipe falls on Elmo's wrist, giving Big Bird and Ernie time to escape. Elmo, since he's just a puppet, rips off his hand and replaces it with the weapon in a similar fashion of another horror movie character in another horror film sequel.
Big Bird and Ernie split up. After a few minutes of wandering around, Elmo catches Ernie and sews his cloth neck to the air vent, where he is hanged gruesomely. Then the crazed creature hunts down Big Bird. As this happens, a prisoner threatens Bird with a gun, but Elmo foolishly kills off this inmate. Bird takes the gun and shoots at Elmo, blowing off his other hand. Then he shoots the puppet into the furnace, where he's fried to a crisp.
Bird is about to go home and watch TV when Elmo climbs out of the furnace, a charred, bleeding pulp. Bird has one last trick up his sleeve. He takes an air hose and jams it in Elmo's ass. The bag of stuffing inflates and finally explodes, covering the room in a soft blanket of innards. Big Bird sighs and goes home, thinking about how he saved the day.
After the credits, we see George Liquor's chihuahua beating him to death with an oar.
There have been rumours that this film will be released as a direct-to-video DVD, making it even more cheap of a production than before. Despite the film being a failure before it was finished, a third movie is planned.