As the levels unfold, it turns out that Morden has allied with Martians to help facilitate his plans. In the final level of the game, the tables are turned when Morden comes under attack and is betrayed by his Martian allies and he is taken prisoner by them. An ad-hoc alliance is formed between the Peregrine Falcon squad and General Morden's army to combat the greater alien threat. After a long battle they succeed in defeating the Martians' Mothership, driving them off the Earth.
Metal Slug 2 added new weapons to the player's arsenal. A single shot from the Laser Gun is capable of killing a column of infantry, and sustained fire quickly destroyed vehicles. Fire Bomb found in the second level helps to clear away mummies.
The game also includes more fighting vehicles. Though just as susceptible to enemy fire as the Metal Slug, these vehicles provided alternate modes of transportation, and advantages associated with each.
Metal Slug 2 introduced the ability into the franchise for characters to transform into different variants during the course of the game. The first transformation is one into a mummy during the second mission of the game. Any hit from the purple tinged attacks of the mummy-variants or potions dropped by bats will trigger the transformation. This causes a drastic reduction in player movement speed and loss of any special weapon.
Mummified characters hold only a pistol, which they fire at a rate of half as fast as normal, and they take time to toss a grenade. Players can not use the knife when transformed. Another hit by purple mist will cause the player, transformed as the mummy, to burn in a purple flame and die. There are antidotes hidden throughout the level and dropped by enemies and prisinors that can restore the player to human form.