Percy, Annabeth, Grover, Clarisse, and Tyson get the Golden Fleece away from Luke, destroying Kronos in the process, and bring it to Camp Half-Blood. It revives Thalia's Tree as well as Thalia herself. Percy then realizes that she may be the half-blood mentioned in the prophecy.
Seven years ago, four half-bloods are running through a forest, being chased by a cyclops. One of them, Thalia, sacrifices herself to save the other three, who are Annabeth, Grover, and Luke, the Lightning Thief from the first movie. Zeus, Thalia's father, turns her corpse into a tree which will provide a barrier for all half-bloods. Camp Half-Blood is formed inside that barrier. In the present day, Percy, Annabeth, and Grover are still students there. Tyson, a cyclops and also a son of Poseidon (like Percy), penetrates the barrier and reveals himself to be Percy's half-brother. Later, a Colchus Bull breaks through the barrier and attacks the camp. After it's destroyed by Percy, everyone sees that Luke has returned and was the one who sent the bull. He also poisoned Thalia's Tree, which leaves the camp vulnerable to attacks.
At this time, Percy also learns of a prophecy involving a half-blood of the eldest gods either saving or destroying Olympus with a cursed blade, and that it might be about him. Later, Annabeth figures out that if the Golden Fleece, which can heal anything, can be recovered from the Sea of Monsters, it could be used to save Thalia's Tree and the camp. Dionysus, one of the camp directors, agrees, but chooses to send another half-blood, Clarisse, on the quest to retrieve it. Percy decides to go on his own quest to get the Golden Fleece, and Annabeth, Grover, and Tyson go along. The group gets the coordinates for the Sea of Monsters, but on the way, Grover is kidnapped by Luke and his henchmen. Percy and the rest find their way to Luke's yacht to rescue Grover, but he's not on board. They get captured themselves, but are able to escape on the yacht's lifeboat.
They reach the Sea of Monsters, but are promptly swallowed up by a Charybdis. Inside it, they find Clarisse. Together, they break out of the Charybdis' stomach, and soon arrive at the lair of Polyphemus, a cyclops who has the Golden Fleece. The lair is disguised as an amusement park named Circeland, and it's there that Percy finds Grover. Luke sent him there to get the Golden Fleece, but has been unsuccessful. The group is able to rescue Grover and together get the Golden Fleece away from Polyphemus by trapping him in his cave. However, they are immediately met by Luke and his henchmen. Percy and the rest are captured and brought to a clearing near the rollercoaster. It's here that Luke's plan for the Golden Fleece can proceed.
Several centuries ago, Kronos, the head of the Titans, was at war with the Olympians, and he is ultimately defeated by Zeus, Poseidon, and Hades. His remains were sealed in a sarcophagus and locked away. Luke was able to gain possession of the sarcophagus, and he will use the Golden Fleece to resurrect Kronos. Kronos can then get his revenge on those who locked him up, and he and Luke can control the world. Luke successfully resurrects Kronos, but his plans are ruined when Kronos promptly eats Luke. As his henchmen run away, Percy and the group attack Kronos. During the fight, Percy's sword, which once belonged to his father, is able to hurt Kronos. He figures that his sword is the cursed blade from the prophecy, and he is able to defeat Kronos and put him back in the sarcophagus. As Kronos was being defeated, he spits out Luke and he lands inside Polyphemus' cave.
With the battle over, Percy hands the Golden Fleece to Clarisse, saying that it was her quest, but she insists that they bring it to the camp together. Back at Camp Half-Blood, the Golden Fleece is laid on Thalia's Tree, which is immediately revived and the barrier is repaired. Later, Percy learns from Chiron, another camp director, that defeating Kronos did not fulfill the prophecy. Annabeth then runs to the camp and says come to the barrier. There, everyone sees Thalia, who was buried underneath the tree, was also revived by the Golden Fleece. She introduces herself as the half-blood daughter of Zeus. The movie ends with Percy realizing that she might be the half-blood mentioned in the prophecy and not him, setting up the events for a third movie.