The game starts on October 20, 2552 (by UEG reckoning), and in the Seventh Age of Reclamation (Covenant reckoning). The game starts off with contrasting perspectives between John-117 and Thel 'Vadamee. In the case of the latter, John is on ODS Cairo, getting Mk. VI MJOLNIR armour. Earth is pretty tense as they know a Covenant fleet is coming (as per the events of Halo: First Strike), and with Reach having fallen, Earth is effectively humanity's last bastion of power. In contrast, Thel is on High Charity, which has parked itself at Alpha Halo. Thel's been called to account for his failure to save the ring from "the Demon" (John). Cue contrasting scenes. On Cairo, John and Avery Johnson are getting awards (with Miranda Keyes getting an award on behalf of her father), while Thel is judged as being guilty of heresy and is branded by Tartarus. It's worth noting that the three prophets (Truth, Mercy Regret) are overseeing his trial, though Regret isn't physically present on High Charity.
From this point, the story focuses on Earth. Regret's fleet arrives, but it's miniscule compared to the one that attacked Reach. Not good for the Covenant, considering that while Reach had 20 ODSes, Earth has 300. The Home Fleet stays within the kill zone, prompting the Covenant to launch boarding craft to take out the platforms rather than attempting a head-on assault. John helps the Cairo repel its borders, while Miranda and Johnson head for UNSC In Amber Clad to join the fight. Things take a turn for the worse when Athens and Malta (the stations) are destroyed by bombs, leading Admiral Terrence Hood to guess (correctly) that there's a similar bomb aboard the Cairo. John's able to defuse it in time. However, two of Regret's carriers have broken through and are headed for the surface. John is able to use the bomb to destroy one of the carriers, while Regret's carrier still heads planetside. John boards In Amber Clad and they also head for the surface.
Cue to the Battle of Mombassa as Covenant forces establish a ground presence. During the fighting, Cortanana reveals that the Covenant didn't know that humanity was on Earth, or that Earth is humanity's homeworld, which accounts for the miniscule fleet size. After fighting through the city and the destruction of a Scarab, Regret is forced to retreat. He does this by performing a slipspace jump inside the city itself. In Amber Clad pursues the ship through the slipspace rupture, which damages a large part of the city in its wake.
Cut back to High Charity, where Thel is brought before Mercy and Truth. While the council wants him dead for his "heresy," Truth acknowledges that Thel is no heretic. Rather, he has a different solution in mind of making Thel the next Arbiter - given the tasks of the Artbiter, he's pretty much guaranteed to die anyway. For his first task, he's assigned to a Forerunner station within the clouds of Threshold, which is hosting a heretic faction led by a sangheili (forget his name), claiming that the san 'shyuum have deceived the sangheili and will lead them to ruin. He takes part in the mission under the command of Rtas 'Vadumee, the Half-Jaw. Things are tense between the two of them, given Thel's failure at Alpha Halo. Regardless, they make their way through the station, killing the "heretics" and later, the Flood. Thel confronts the leader, who's revealed to be in contact with an Oracle (Monitor), speicifically 343 Guilty Spark. Thel kills the leader, but Spark is confused by the apparent adulation given to him by the Covenant. Nevertheless, Spark is incapacitated by Tartarus, and they return to High Charity.
Cut back to John, where In Amber Clad has emerged from the slipspace jump in orbit of another Halo - Installation 05/Delta Halo. Regret's already deployed troops on the surface. John takes part in an ODST assault to secure a beachhead, allowing UNSC forces to land. On the surface, Cortana picks up Covenant chatter - Truth's pissed by Regret jumping the gun in regards to attacking Earth. But speaking of Regret, through a hologram, John and Cortanana learn that he intends to activate the Halo ring, which, as they learnt in H1, would be a very bad thing. Miranda orders John to assassinate Regret, while she finds the Index, which Regret will need to activate the ring. On their way to Regret, above the Halo, John and Cortana see the arrival of High Charity and its fleet - larger than any fleet the UNSC has ever seen. On a timer, John is able to assassinate Regret, but a Covenant ship opens fire on the site. John is able to avoid the beam, but does so by jumping into the waters below, the blast knocking him unconcious. As he sinks, tentacles from the depths emerge and pull him down.
Cut back to High Charity, where things aren't well. The jiralhanae are replacing the sangheili as the guard of the prophets, and a lot of the sangheili aren't happy about that. Truth justifies this by stating that with the death of Regret, it's clear that the sangheili can no longer guarantee the san'shyuum's safety. Rtas points out that Phantoms had been dispatched, and Truth gave the order for them to withdraw, but Truth shuts him down. Thel keeps his feelings on the matter guarded, but points out that the sangheili have always been the protectors of the san'shyuum. But putting that aside, Truth reveals Delta Halo. Mercy shows him Spark (the Oracle), stating that after being questioned, Spark revealed the manner to activate the ring - the Index. Thel and a sangheili force are sent to Delta Halo. On the way, Tartarus tells him that "the Demon" (John) was the one who killed Regret - the same one that destroyed Alpha Halo and cost him evertyhing. Tartarus sees through his claims that the Index is his only concern. But that aside, what's ALSO his concern is that the Index is located in the Quarantine Zone, which is now a battlefield between the Flood and the ring's Sentinels. The Flood have infected both Covenant and UNSC forces, and a three way battle erupts as Thel makes his way to the Index chamber. As it turns out, Miranda and Johnson have beaten him to it, but he's able to incapacitate them. At this point Tartarus arrives, taking Miranda and the Index, before turning on Thel. He reveals that the jirahlanae are planning to attack the sangheili, and that he's here to kill Thel himself. He further reveals that this is on orders of the san'shyuum. he blasts Thel with his gravity hammer, and he falls into the depths of the facility. However, he's saved by the same tentacles that rescued John earlier.
Speaking of John, we get back to his POV, as he finds himself in the clutches of a Gravemind. Company is joined by Thel, who's less than enthused to see "the Demon" that destroyed Alpha Halo. The Gravemind uses the reanimated corpse of Regret and the monitor of Delta Halo (2401 Penitent Tangent) to reveal the truth to Thel - the Great Journey is a lie. Halo is a weapon. Thel refuses to believe it, and neither John nor the Gravemind can convince him. The Gravemind uses the ring's teleportation system to send them to find the Index, to stop the activation of Delta Halo. John arrives at High Charity, while Thel is sent near the ring's control room.
High Charity has fallen into panic. The fleet is engaged in civil war (the Great Schism) as the sangheli and jiralhanae have turned on each other. Furthermore, the Covenant is aware of the release of the Flood on Delta Halo and the city's citizens are panicking. Truth, addressing the city, tells them to remain calm, revealing that in his hands lies the Index. The sermon is interrupted as John appears in the room via teleporation. Truth and Mercy escape, and bid the jiralhanae kill John. He fights his way out and finds High Charity in the midst of civil war. He fights his way through the city, pursuing Truth, even rescuing some marines on the way. However, In Amber Clad crashes into the city - it's been hijacked by the Flood, and High Charity begins to be infected. John fails to make it to the prophets in time, who are parting ways. Truth entrusts Tartarus with the Index and Miranda, while he intends on taking the keyship to Earth. Mercy is attacked by a Flood infection form, but Truth leaves him to die.
Cut back to the surface of Delta Halo, where Thel also finds himself in the midst of the Great Schism. On one side are the jiralhanae, kig-yar, and yaname'e. On the other are the sangheili, unggoy, and lekgolo. Along the way, Thel discovers that the High Council, which had come to the Halo to see its activation, has been murdered. Eventually, he comes across Rtas, who's still alive, and still fighting. Furthermore, he also encounters Johnson, who's driving a Scarab.
Cut back to High Charity, as John encounters Mercy, still being infected. He tells him that Truth is taking the keyship to Earth. Cortana tells John that he's got to get onboard the ship, while she stays in High Charity's systems to delay the launch. This will mean that she has to stay behind. She also states that if the ring is activated, she'll detonate In Amber Clad to destroy Delta Halo, similar to how they used the Pillar of Autumn to destroy Alpha Halo. As John makes his way after Truth, High Charity is being overwhelmed by the Flood. Cortana reveals that there's an intelligence on the ship that's fighting back against her (Mendicant Bias, though this isn't revealed until Halo 3). John makes it onboard the keyship in time, hitching a ride onboard, leaving Cortana on High Charity, now overwhelmed by the Flood.
Cut back to Delta Halo, as Thel and Johnson team up to make their way to the control room. Johnson drives the Scarab while Thel uses a Banshee. They make their way inside, finding Tartarus trying to force Miranda to use the Index to activate the Halo (which only humans can do per their status as Reclaimers). Thel confronts Tartarus, and gets Spark to tell the truth about the Halo Array - the Halos aren't divine instruments, they were weapons of last resort used by the Forerunners to defeat the Flood. The Forerunners are now dead, not ascended. The Great Journey, the entire foundation of the Covenant, is a lie. Still, Tartarus refuses to believe it, and forces Miranda's hands down, activating the ring. A battle erupts where Thel and Johnson kill Tartarus. Miranda pulls the Index out, interrupting Delta Halo's firing sequence. While the array hasn't activated, it's now capable of remote activation from a place called the Ark.
Cut back to Earth, which is now under attack by the Covenant fleet. The keyship emerges in-system and is picked up by the UNSC. John contacts Hood, telling him as to what he's doing the ship, that he's "finishing this fight." Meanwhile, on High Charity, now a Flood hive, the tendrils of the Gravemind close in on Cortana.