Lara Croft's main goal in this game is to obtain the Dagger of Xian. The dagger was previously used by the Chinese Emperor to turn himself into a dragon by stabbing the dagger into his heart. He was eventually defeated when a group of Tibetan monks succeeded in removing the dagger from his heart and sealing it inside of the Great Wall for safe keeping.
The game begins with Lara discovering the entrance chamber to the holding place of the Dagger. As soon as she notices the key to the chamber is missing, she is attacked by a man who claims to work for Marco Bartoli, the leader of the Venetian mob. Lara soon discovers that Bartoli and his criminal associates have founded a secret cult obsessed with the dagger, and she proceeds to track him through Venice, his hideout, and then eventually makes it on to his private plane on its way to an oil rig in the Adriatic Sea.
Lara learns for that cult is excavating a sunken ship by the name of the Maria Doria. A captured TIbetan monk, named Brother Chan, informs her that the ship carries an artifact, called the Seraph, which serves as the key to another artifact, called the Talion, which, in turn, is the key to Dagger of Xian. Chan also tells Lara that he is from an ancient order of monks who live at the Barkhang monastery and have sworn to protect the Tallion. Chan also lets on that the Barkhang monks were ones who sunk the Maria Doria in the first place. However, before Chan can tell Lara any more information, he is shot by Bartoli, prompting Lara to dive into the ship and retrieve the Seraph.
After collecting the Seraph, Lara journeys the Barkhang Monastery and retrieves the Talion. She then travels back to the Great Wall. After a car chase with Bartoli, Lara opens the door of the Dagger of Xian's chamber. However, before she can collect the dagger, Bartoli puts it through his heart and turns into a dragon. Lara defeats the dragon and succeeds in pulling the dagger out of Bartoli's heart.
However, the remainder of Bartolis' men track down Lara at her mansion and invade it. Lara collects her shotgun and successfully defends her home from the intruders.
New gameplay features that Tomb Raider II introduced were new weapons, extra moves, vehicles, larger levels, more enemies, and lighting effects. The game also introduced the ability to save at any point. New abilities for Lara include climbing ladders and flipping direction mid-jump.