The story is presented through a series of flashbacks, as some of the young adults are questioned at a police station about their time spent in the woods.
The story begins in Burkittsville, Maryland, where the release of the original Blair Witch Project has attracted a group of young tourists. They want to find the Blair Witch, and hire Jeff, who has made a business of leading tours into the Blair Witch's woods called the BlairWitch-Hunt. They venture into the woods to camp for the night.
They wake up the next morning with no real memory of the night before, lack memory of five hours, and videotapes shot during the night seems unclear. Over the course of the rest of the movie, several of the tourists are murdered, and the remaining individuals are suspected as the killers. It is never made clear whether the murders are caused by witchcraft, the still-never-seen Blair Witch, or some other cause. The people left alive claim to have no memory of most of the deaths, and recall instances of possession or suicide, but videotapes taken during the events all show the living tourists killed their friends.
The movie ends with the observation that memories can lie, but that video always tells the truth, implying that the movie itself (Book of Shadows: Blair Witch 2) has lied to the audience, and only the videotape at the end of the film reveals the "true" story: that the remaining tourists are the murderers. The film shows Tristen, who has been "possessed" by the witch, shouting out demonic things and threatening to kill them all, so the other tourists kill her; however, the video reveals that the tourists were actually the ones possessed and what they heard was an auditory hallucination. In reality, Tristan was screaming for her life. She had been scared that she was going to be killed by the possessed tourists.
Desiring a more "commercial" film, the studio (Artisan) recut the film and re-shot certain scenes to add more "traditional" horror movie elements. Director Joe Berlinger repeatedly states on the DVD commentary that he does not like the changes that were made and that they ruin the ambiguous tone of the plot. The film was nominated for five Razzie Awards, including Worst Picture, and won for Worst Remake or Sequel.
Roger Ebert, who gave the first film four stars (out of four), gave Blair Witch 2 two stars, calling it "a muddled, sometimes-atmospheric effort that could have come from many filmmakers" and "not a very lucid piece of filmmaking." Shawn Levy of the Portland Oregonian gave a mildly positive review, saying: "There are moments of pleasure, humor, and [...] terror to be had here. Luke Y. Thompson of the Dallas Observer said the film "deserves points for creativity" but is "not entirely successful.
Owen Gleiberman of Entertainment Weekly called the film "a flat [...] thriller. Chris Kaltenbach of the Baltimore Sun said: "Gets credit for avoiding the easy path. Too bad the path it chooses doesn't lead us anywhere we want to be taken. Jack Mathews of the New York Daily News commented that "the characters are boring, the violence generic, the suspense nonexistent. Wesley Morris of the San Francisco Examiner called the film "throwaway megaplex fodder. David Edelstein of Slate summed up his thoughts with, "Lordy, what a stinker.