The Dagger of Xian is a legendary weapon that was used by Chinese emperors to command their armies. It is said that a person can turn into a dragon by piercing his own heart with this dagger. When one of the emperors used it for that purpose, Tibetan monks manage to withdraw the dagger from his heart and return it to its resting place on the Great Wall. While investigating the legend, the archaeologist Lara Croft finds out that a powerful Venetian crime lord is hunting for the dagger, and must do everything in her power to prevent him from obtaining it.

Tomb Raider II is an action game with platforming and puzzle-solving elements, similar in concept and gameplay to its predecessor. Most of the gameplay consists of traversing hazardous 3D levels utilizing Lara's athletic skills and solving environmental puzzles. The sequel puts more emphasis on fighting enemies, adding many human foes to the mix. Additional weapons include a harpoon gun, a grenade launcher, and an M16 rifle. Automatic pistols replace the magnums from the first game.

There are two vehicles the player can drive in the game: a motorboat in Venice and a snow scooter in Tibet. Lara can now climb ladders and perform a roll in the air, landing in an opposite direction. The sequel also allows the player to save the game anywhere.