A Venezuelan billionaire named Ramon Solano hires a mercenary to rescue general Carlos Carmona, who attempted a coup d’état and failed. After a successful completion of the objective Solano refuses to pay and tries to kill the mercenary, who barely escapes.

Afterwards, Carmona and Solano take over Venezuela, pulling off a successful coup, capturing the country's oil platforms, putting the world on alert as they seize total control of the country. Unbeknownst to them, the mercenary has survived and is now plotting revenge against the two. The mercenary must take contracts from rival factions such as Universal Petroleum, an oil company whose business is threatened by Solano, the P.L.A.V. (People’s Liberation Army of Venezuela), who are a force of rebel soldiers determined to take back their country, the Jamaican Pirates, who profit from Solano's forces, the A.N. (Allied Nations), who have entered the company to try and bring back stability to the region, and the Chinese Army, who hope to take control of Venezuela as well, marking themselves as a true superpower.

Mercenaries 2: World in Flames is a free-roaming driving and action game. In the beginning the player selects one of three mercenaries from the previous game (Mattias Nilsson, Chris Jacobs and Jennifer Mui). Each merc has a special ability: Jennifer can run faster than others, Mattias regenerates his health faster, and Chris can carry more ammo. The gameplay is similar to that of the preceding game, with a few minor changes, one of which is a new way to hijack tanks: whereas in the previous game the player could simply walk up to the tank and automatically hijack it, it is now necessary to participate in quick-time events to get rid of the enemy gunner. It is possible to use a grappling hook to latch onto passing helicopters in order to hijack them. As opposed to the previous game, player characters can swim.

The protagonist now has a "headquarters" of sorts, where he or she can stockpile weapons, supply crates and vehicles. To obtain these stockpiles the protagonist must recruit three certain soldiers unlockable in the game: a helicopter pilot named Ewan Garrett, who delivers stockpile crates found by the player character to the headquarters; a mechanic named Eva Navarro, who will repair and stock vehicles, and is used for artillery strikes; and a fighter pilot named Misha Milanich, who is used for air strikes. Fiona Taylor reprises her role, giving the player technical information and training missions.

There is no more black market contacts to purchase supplies or airstrikes; instead players must take complete jobs for contacts scattered on the island. Completing jobs for these contacts will supply the headquarters with materials such as weapons, medikits, and artillery support. It is also possible to stockpile vehicles by driving back to their headquarters, keeping them at the garage for use in missions. Also, gas is needed to bring in supplies or call in airstrikes, which can be obtained by either completing contracts or collecting them scattered throughout the country.

Once again, bounties come into play, but instead of the "Deck of 52" from the first game, there are now "High Value Targets", military leaders that have defected from the Venezuela military and declared themselves independent from Solano as well as competing factions. They are scattered throughout the map; capturing them alive will grant the player character more money, while killing them will only net half the bounty as a reward. There are also "treasures" lying around the island, such as fuel cans, weapons schematics and even pirate treasure chests; each has their own monetary value for collecting them.

There are also new vehicles in the game, as well classic vehicles, such as modernized tanks, more powerful helicopters and even (for the first time) boats and other watercraft such as jet ski, as well as civilian muscle cars, high-end racing cars, and specialized vehicles for each faction.