As Derek and Odette's kingdom prepares to celebrate Festival Days, the evil sorceress Zelda plots to reclaim Rothbart's notes on the Forbidden Arts; notes she helped write when she and Rothbart were partners. To discover if the notes still exist, Zelda captures a yakey-bird named Whizzer, who has the ability to imitate any voice after hearing it only once. Though Zelda's magical abilities are limited, she can create a magical fireball called a seeker to target anyone she commands it to. Threatening his life with this ability, Whizzer goes to Swan Lake Castle as a spy and overhears how Derek and Rogers discovered Rothbart's notes and had them hidden. Odette never knew Derek found the notes and always assumed if such things were discovered, the notes would be immediately destroyed. She tries to convince Derek to dispose of it saying how nothing good will ever come of them while Derek maintained his belief of someday using the notes for good.
After Whizzer informs Zelda, she goes to the castle pretending to be an "accordion slave". She flirts and charms Lord Rogers with a story about how she had escaped a king who kept her locked up and play the accordion constantly. Rogers falls in love with Zelda and invites her to stay at the castle, despite the reservations of Queen Uberta. That night, Zelda steals the chest with Rothbart's notes and flees. To her dismay, the notes are incomplete and prevent her from gaining full power. Zelda questions Whizzer and learns that Derek tore off the remaining portion and has it hidden.
Zelda casts a seeker to find Odette, while Whizzer is sent to deliver a ransom note to Derek. The seeker successfully brings Odette and Jean-Bob to Zelda's lair. At the castle, Derek receives the ransom note and retrieves the torn portion of Rothbart's notes from where he'd hidden it in the library. Whizzer is captured by Speed and Puffin, who convince him to help them stop Zelda. Whizzer eventually agrees and the group heads out to help Derek to rescue Odette.
When Jean-Bob frees Odette, she attempts to sneak off with the notes only to be caught again. Zelda then transforms Odette into a swan, and imprisons her and Jean-Bob in a dome of green fire that would destroy them if they touch it. When Derek arrives at the meeting place to pay the ransom, Zelda tricks Derek into letting his guard down by disguising herself as Odette and snatches the final piece from his grip. Zelda mocks Derek and retracts her promise of returning Odette. Instead, she plans to test the Power to Destroy on Odette.
Puffin and the others finally meet up with Derek and race toward Zelda's lair. They free Odette and Jean-Bob as Zelda was busy absorbing the Power to Destroy. Derek and the others face her in battle and as the fight ensues, Zelda conjures a destroying seeker and casts it at Odette. Odette, with Puffin, flies away from the lair in an attempt to escape. Whizzer distracts Zelda by imitating Rothbart's voice, allowing Derek to snap her wand in two. Zelda falls back onto her own dome of green fire spell and is destroyed. Puffin returns to the lair alone and tells Derek that Odette was killed by the seeker. Derek is heartbroken and sobs, regretting that he did not destroy the notes earlier. As he burns the notes, he apologizes to Odette and prays some good may still come from it. The flames take on the shape of a swan, from which an double materializes. Derek embraces her and tells "Odette" he loves her.
The Kingdom is safe once more and the festival takes place as planned with Jean-Bob winning the obstacle course and becoming prince for a day (with a little outside help from Whizzer), and Uberta and Rogers winning the talent show. As Derek and "Odette" watch the proceedings, "Odette" asks Derek to promise there is no more magic in the castle. Derek replies he cannot because "So long as you're here, there'll always be magic," and they kiss.