Set four years after the events of the first film, it is revealed that both Allen Bauer and his wife, Madison (a mermaid), have been living on a deserted island hideaway. Allen becomes bored on the island and admits he misses life in New York City and his brother, Freddie, and Madison, aware of Allen's sadness, has an ability to view/communicate by simply running her index finger in a circular motion on water, shows Allen how things are going on back in New York with Freddie.
Realizing that the family business, Bauer Produce, is in trouble since he left Freddie alone, Allen tells Madison that it is time to return to New York and help save the family business. (This contradicts the first movie's finale revelation that if Allen goes to live in the sea, he can never return.) Upon returning, they move into a new home, meet a new neighbor Mrs. Needler (Doris Belack), and Madison meets a new friend, Fern Hooten. Later on, Madison has her own agenda: to save her dolphin friend, Salty, who is being held in captivity by Dr. Otto Benus (Mark Blankfield) for research. While trying their best to hide Madison's secret, they do their very best as a married couple, growing closer to one another during this adventure.
- Todd Waring as Allen Bauer
- Amy Yasbeck as Madison Bauer
- Donovan Scott as Freddie Bauer
- Rita Taggart as Fern Hooter
- Dody Goodman as Mrs. Stimler
With a production budget of $3.3-million, the film was the first one to be filmed at the then-new Disney-MGM Studios complex. Amy Yasbeck had to wear a blonde wig (over her red hair) when playing Madison.
Yasbeck went through extensive physical training to prepare to play Madison in the underwater swimming shoots with her mermaid tail costume. Yasbeck was originally going to wear the mermaid tail costume worn and used by Daryl Hannah in the first film, but she could not fit into it. New form-fitted mermaid tails were made for her and her stunt double by Thom Shouse, best known as the Tail Man. The ones made for this fulm were easier to put on than the one made for Hannah since they had been made with a zipper. Nevertheless, it took three people to zip it up on Yasbeck, and then lift her into the water. It was also heavy for the actress to wear.
Dody Goodman (Mrs. Stimler) is the only returning cast member from the original film. Todd Waring and Yasbeck would reunite together on screen in an episode of the NBC sitcom Wings (titled "House of Blues"), on March 5, 1997 (Season 8, Episode 17). He was a guest star, while she was already a series regular on it.
The film was released on home video (VHS tape) in the United Kingdom (region 2, PAL format) and Australia (region 4, PAL) by Walt Disney Home Video. Both the UK release and Australian release have been out of print for many years but sometimes shows up on auction sites. There has been no official home entertainment release of any form (VHS or DVD) in North America (region 1, NTSC format). There are currently no plans to release it on DVD from Walt Disney Home Entertainment.
The film is however still shown on television in various countries such as the UK and Ireland.
- Dody Goodman is the only member of the previous movie's cast to reprise her role.
- The song Whistle While You Work from Snow White makes an appearence