Fantaghirò is the youngest of three princesses born to a warrior King. Although beautiful and intelligent, she causes many problems for her family because she goes against everything expected for a woman in her kingdom, by being literate, adventurous and rebellious, which makes her father furious. One day, the warrior King receives an invitation from the enemy king Romualdo to a duel that can potentially end the centuries-long war that has been going on between the two kingdoms. The warrior king then learns that only one of his three daughters can win the duel. Fantaghirò sees this as a chance for her to prove herself.
Following the events of the first film, Princess Fantaghirò and Prince Romualdo are due to be married. The Black Witch, an evil ruler of the Dark Kingdom, is disgusted by their love and wishes to destroy it, and to this end she kidnaps Fantaghirò's father. The couple hold off their wedding so Romualdo can lead their army to save Fantaghirò's father. On the journey to the Dark Kingdom, Romualdo and his men encounter Forest Elves and their Queen, who force them to submit to a series of tests to prove that their intentions are pure. Romualdo passes and the army continue on their way. They eventually reach the borders to the Dark Kingdom where they make camp for the night. As they;re resting, the Black Witch, magically disguised to look like Fantaghirò, arrives and gets Romualdo to kiss her. He faints and the evil queen takes him to her castle where she makes him her lover.
When Fantaghirò arrives at Romualdo's camp, she finds it abandoned. She enters the Dark Castle and learns that Romualdo's men have all been thrown in the dungeon. She negotiates with the Dark King to have a single duel between Fantaghirò and the Dark Kingdom's champion to decide the victor, with the losing kingdom submitting to the other. The Dark King agrees but, Fantaghirò is horrified to discover that she has to fight her beloved, Romualdo, who has been bespelled to forget all about her.
The evil wizard Tarabas has learned of a prophecy that a royal child no older than ten is destined to destroy his kingdom. Shocked to learn that he is not invincible, Tarabas sends his clay soldiers out to kidnap all the royal children of the world. His mother, Xellesia, disapproves of this, but Tarabas is obsessed with learning how he will be defeated. Among the children he targets are the babies of Catherine and Caroline, Fantaghirò's sisters.
As Fantaghirò and Esmeralda sleep, Tarabas is overcome with desire to kiss Fantaghirò, but as soon as he approaches her, he starts to transform into a hideous beast. Tarabas runs away from the camp, and as soon as he does, the transformation ceases and he returns to his human form. He is confronted by Xellesia, who explains that the dark magic within him does not allow him to fall in love, for as soon as he tries to kiss the one he desires, he will be transformed into a beast to devour them.
A mysterious black cloud is travelling across the land, bringing death and destruction wherever it goes. Fantaghirò is helping the people of her kingdom escape to safety when she crosses paths with young Prince Parsel. Parsel is chasing the black cloud because it took his castle, and he is trying to find a way to get it back. When the black cloud passes over Fantaghirò's castle, it too disappears, so she joins with Parsel to search for the origins of the black cloud. They travel to the kingdom of Tohor where they discover that Tarabas, the reformed dark wizard, has been imprisoned and accused of conjuring the black cloud. Fantaghirò, who knows that he has renounced his evil ways, helps him escape. Fantaghirò, Tarabas, Parsel and Princess Angelica of Tohor (who has fallen in love with Tarabas) leave Tohor to track down the black cloud, which they discover is conjured by a powerful dark magician named Darken.
Darken promises to bring Fantaghirò back to life if Tarabas will embrace his dark side again. Tarabas is reluctant, but Fiodor talks him into it. It is revealed that Fiodor is actually Romualdo, transformed by Darken into a hideous monster in order to torment him with never being able to return to Fantaghirò. Fiodor also makes Tarabas promise to take care of Fantaghirò. Tarabas finally agrees to become evil again if it means that Fantaghirò can live, and Darken revives her. While Tarabas tries to convince Darken of his evil "honesty", Fantaghirò conspires with Fiodor, Angelica and a revived Parsel to rescue the stolen castles from Darken's collection and escape from the underground kingdom. After Darken is temporarily subdued, Tarabas, Xellesia and a reluctant Black Witch join the group in escaping from Darken's kingdom. Along the way, Xellesia sacrifices herself so her son will be safe.
Fantaghirò is captured by the Black Witch who wishes to kill her in order to regain the power she lost in the prior two films. During her incarceration, Fantaghirò encounters a creature made entirely of fruit, who claims to come from another world and to have been in the service of a new, dangerous enemy.
