The game is set in 1996, two years after the events of the first film. Veteran and former police officer Ellis Lynch (voiced by Joseph May) alongside his police dog Bullet, travels to Black Hills Forest in Burkittsville, Maryland to join the search party for the missing 9-year-old Peter Shannon. He arrives and begins his search. Shortly after entering the forest, Ellis contacts search party leader Sheriff Emmet Lanning, who lets Ellis join the search despite questioning his mental fitness due to his recurring PTSD.

After finding Peter's hat and following his scent, Ellis and Bullet reach a campsite. Ellis finds a working camcorder before blacking out. He begins to recall previous points in his life before waking up inside the tent to find that night has fallen.

Ellis happens upon a red tape and after viewing it, realizes that he can manipulate reality around him, which he uses to find clues. Shortly after, he receives contact from Lanning, who tries to locate him. Lanning desperately told Ellis that the team never saw the campsite he described, and for him to stay put so they can rendezvous. He refuses, continuing to walk deeper into the thicket in fear of Bullet losing Peter's scent.

Ellis and Bullet eventually arrive at a crooked white tree with black vines, and they are stalked and attacked by several silhouetted creatures, but he scares them off with his flashlight. As they search the surrounding area, the duo finds what looks to be war trenches and a broken-down vehicle. He encounters another red tape that shows Peter's abduction by a mysterious figure. As Ellis and Bullet try to find another route, the broken-down truck transforms into Lanning's police truck. After instructed by an unknown voice through the radio, Ellis switches on the truck's headlights. A bright flash envelopes them and they find themselves the next morning.

Continuing their search, Bullet finds Lanning's body buried under forest debris; another tape shows Lanning's murder by Peter's abductor. Ellis follows Bullet back the way they came only to find that the riverbank they crossed is now dried up. While walking across the river, Bullet sniffs an old soldier's helmet. As their surroundings are slowly altered into a battlefield, Ellis and Bullet proceed to run to escape gunshots until they came upon a large tree. Ellis follows Bullet through the hollow tree trunk whilst hearing mysterious whispers of a woman before losing consciousness again.

It is revealed through his nightmare that Ellis, as an officer, fatally shot Peter's brother while responding to a robbery call; he becomes obsessed with saving Peter as a means of amending it. Awakening, he finds himself in front of the campsite, now far more deteriorated. He inexplicably finds various dog tags belonging to his previous military squad. He, alongside Bullet, finds more clues to investigate a lumber mill deep in the forest.

On the way, Ellis finds parts of the forest burning, with rubbles reminiscent of the site of his failed mission scattered throughout with strange forces digging through the pile of dead leaves. He suffers a powerful hallucination of how he felt responsible for the death of his military squad, who were all killed during the mission. Arriving at the mills' outpost, he uses the recorder to restart the boiler to power and ride a minecart. Crossing a bridge, Ellis calls his ex-wife Jess one more time before losing the signal, who insists he return, but he refuses.

At the mill, Ellis finds the corpse of missing lumberer Todd Mackinnon, murdered with a circular saw by the abductor. He confronts the abductor, a disheveled man named Carver, who asks if he sees "her". He accuses mocks and knocks Ellis out, stating that Peter must die because 'such is "her" will'. Ellis awakens as Carver drags him back to the new completely decayed campsite. Under Carver's instructions, he uses the camcorder to locate the white tree, which he uses alongside a deer's skin to make the witch's sign. Carver urged him to survive by submitting and directs him to shoot Bullet; outraged, he refuses. Bullet runs off and is later found wounded. Ellis carries him only to find himself walking in circles.

Ellis passes out to find Bullet missing. After losing and regaining consciousness several times, he's confronted by Carver, who taunts him with Bullet's supposed death. He wakes up at the now-flooded campsite in a rainstorm. He sees and enters a dilapidated house, following clues through numerous doorways and passages leading to the basement. Visions of the past reveal the cause of Ellis' PTSD; he accidentally killed a native girl while hiding from enemy forces during a combat mission. This shocks him enough, causing his negligence in warning his squad of danger, resulting in their deaths; the concealed face seen throughout the game was the girl's face.

Mysterious voices alongside creatures inside the house continue to taunts Ellis. In a fit of rage, he aggressively makes his way into the basement. Entering it, he finds Peter is nowhere and goes through a secret trapdoor that teleports him outside to Carver. Multiple endings are available.

Depending on the player's actions throughout the game, he either kills Carver or lets Carver kill him, refusing to allow the presence to take him over. Based on how well he was treated, Bullet could end up alive and well. If he ends up killing Carver, he will find himself into the next Carver, causing Bullet to leave the forest in fear and sadness. If he lets Carver kill him, Bullet will either moves on or stays by his side. The outcomes also vary; It can either reveal that Lanning's body was never found or was recovered and buried with top honors, either Todd Mackinnon's remains were found nearly beyond identification or recovered by his family to be buried, and Peter's fate can either be unknown, revealed to be murdered at Carver's hands, or safely found by the authorities and returned to his family unscathed.

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