The ancestors in the temple awaken, including a tiny, loud-mouthed dragon named Mushu who was demoted from being a guardian after a failed attempt to protect one of the family. Accidentally, he destroys the statue of the "real" dragon chosen to retrieve Mulan, and in an effort to avoid getting in trouble and perhaps getting back his position as a guardian, he goes after Mulan himself, along with Cri-Kee the cricket, planning to make Mulan a war hero.

In the meantime, Mulan enters the army camp, after a somewhat nerve-racking encounter with Mushu, and after following his misled advice, ends up getting all of the recruits including herself into trouble with their commanding officer, Captain Li Shang.

Shang is a strong and determined warrior, taking after his father, the general of the army. After explaining his strategy to wait for the Huns in the Tung Xiao pass, he leaves the task of training the new recruits to Shang, a task which he finds more difficult than he imagined. Mulan, who is now known as Ping, has the hardest time in training, and finally Shang dismisses her, deeming her unfit to be in the army. But Mulan regroups and shows that she *can* do it, by retrieving Shang's arrow at the top of a pole. In time, she proves to be an equally competent warrior as the rest of them.

The Hun army is moving quickly through China, choosing to go through the Tung Xiao Pass as the quickest route to the Emperor and the Imperial City. Meanwhile, back at the camp, the Emperor's council does not believe Shang's men competent for battle denies Captain Shang of allowing his army to fight. Mushu, hearing this, takes matters into his own hands and forges a message from the general, ordering Shang to bring his army to the front lines.

On the way, the men dream of women as they march to the pass, only to have a rude awakening as they come across a burnt-out village. The search for survivors yields only the discovery of more death and destruction: the General's army. The Hun army has been here, and are no doubt making their way to the Imperial City.

On their way through the pass, Mushu accidentally sets off a canon, giving away the army's position to the Huns, and a battle ensues. And just when Shang's army thinks they have them beat, the Huns prove they are still going strong as they swarm down the mountainside in an earth-shattering stampede. With only one cannon left, Shang orders it to be aimed at Shan-Yu, the vile leader of the Hun army. But Mulan, thinking quick on her feet, grabs the cannon and fires it at an overhanging mountain peak, causing a massive avalanche that devours everything in its path. All congratulate Mulan, including Shang who says he owes Ping (Mulan) his life. The Imperial Army doesn't celebrate for long, for their savior suddenly falls ill due to serious injury.

The army waits in anticipation, hoping to hear news of their fallen soldier. To their surprise, the news is not what they expected. Mulan's true identity is discovered, and she is dragged out to be executed. But Shang lets her go, muttering that his debt has been paid, and orders his army to move out, leaving Mulan to return home on her own.

Crestfallen, Mulan reflects, regretting that she ever decided to pull this off in the first place. Another major failure as she sees it, and sadly says that she'll never amount to anything. Mushu admits to her that he wasn't sent by the ancestors and that he pushed her into all this for himself. And as they prepare to return home, a sound catches Mulan's attention. Lower on the mountain, Shan-Yu and some of his army pull themselves out of the snow, and make their way down to the city. Unable to leave without doing something to help, she rides down to the celebrating city.

However, Shang, still bitter about having been deceived, does not believe Mulan about the Huns and pushes her aside as he and his men march to the palace to receive their honors. But before the Emperor gets very far in his speech, the Huns attack, kidnapping the Emperor and locking him inside the palace. Mulan comes up with an idea to get inside and deceive the guards. They are able to get the Emperor to safety, but Mulan and Shang are left to face Shan-Yu, who, upon realizing who Mulan is, goes after her. But Mulan is ready, and, with the help of Mushu, successfully destroys Shan-Yu.

For the first time in her life, Mulan knows the feeling of being looked up upon by others. The Emperor thanks her for saving his life, and saving all of China. He bows to her, as does Shang and his men, and soon all the hundreds of thousands of people gathered at the palace bow down in Mulan's honor. The Emperor invites her to be a member of his council, but she declines, wishing only to go home. So instead, the Emperor offers her his medal to give honor to the Fa family, and Shan-Yu's sword to show to the world what she has done.

When Mulan returns to her village and offers her father the gifts of honor given to her, she pushes them aside and embraces his daughter, telling her that, "The greatest gift and honor is having you for a daughter." A few minutes later, Captain Shang arrives, returning Mulan's helmet. She asks him to stay for dinner, and at the same time, Mushu is granted the status of being a guardian once again.