Episode 2 of "The Haunted Palace" dawns with Yeo-ri awakening amidst the grandeur of the palace, only to find Seo Jae-il, Yoon Gap's steadfast bodyguard, awaiting their return anxiously. When they failed to appear, his concern led him on a frantic search. The revelation that a master swordsman had struck down Yoon Gap, as conveyed by the physician, leaves both Yeo-ri and the King thunderstruck.
Elsewhere, within the confines of her chamber, the Queen Mother confides in a blind shaman, recounting her harrowing encounter with the same malevolent creature that now plagues the Crown Prince, thirteen years prior. The creature's distinct, putrid stench serves as its unmistakable hallmark. Yet, the shaman's probing questions hint at a deeper agenda—whether she harbors designs on her son, Prince Yeong-in, ascending to the throne once the Crown Prince succumbs to the beast's possession.
Meanwhile, Kwak's astonishment knows no bounds upon discovering that Yoon Gap, akin to a mere bookworm, had somehow survived his grievous wound and bested his guards. He dispatches one of his own to eliminate the perceived threat, but this assassin's mission is foiled by a lethargic Gangcheori, who repeatedly shoos him away with playful kicks. The ensuing commotion draws the doctor and nurses, allowing the assassin to slip away undetected. Gangcheori, now indulging in a feast—the first time he has tasted the pleasures of human sensation—gobbles down food with unbridled joy, prompting the doctor to speculate on amnesia.
Suddenly, Gangcheori's countenance darkens as he catches the eerie wail of the creature, his heart racing with fear for Yeo-ri's safety. She, meanwhile, mistaking a spectral echo for Yoon Gap's voice, ventures forth in pursuit. Instead, she encounters a treacherous drowned spirit, which lures her to the brink of a well and pulls her into its depths. Gangcheori arrives at the nick of time, his strength summoned by desperation, and hauls her to safety.
As he attempts to rouse her, his eyes widen in admiration at her beauty. The spell is shattered when she sputters water onto his face, brushing off his concern with a wave of her hand. He jokes, half-seriously, that her well-being is crucial to his ascension, but his efforts to lead her away are thwarted by the pain of his stab wound, causing him to lose consciousness.
The following morning, the King entertains Yeo-ri, his eyes now adorned with spectacles crafted from Neop-deok's female Ghostbane Stone. Both are perplexed by Yoon Gap's urgency to arrange a meeting between the King and an optician, given the latter's possession of these enchanted glasses. Before the King can dismiss her, Yeo-ri persists, insisting on crafting sunglasses for him. Her request grants her additional time in the palace, which she uses to search for the elusive drowned spirit.
As Yeo-ri delves deeper into her search, she unexpectedly encounters the Queen, her senses assailed by an overpowering stench emanating from the royal figure, only to be politely dismissed shortly after. This peculiar encounter finds its explanation in a revelation: the Queen and Yoon Gap have formed an alliance, keeping tabs on Yeo-ri's presence within the palace walls.
Later, Yeo-ri discovers a chilling truth—Gangcheori had harbored designs on terminating Yoon Gap's physical form, aiming to escape his confines and inhabit Yeo-ri's body instead. Meanwhile, the War Minister's lackeys lavish Gangcheori with free sustenance, hoping to keep him docile, until Mrs. Yoon stumbles upon him, berating him for his sudden boldness. Yeo-ri, having already settled Gangcheori's clinic bill, tags along, and he promptly collapses at home, while Mrs. Yoon goes to great lengths to accommodate Yeo-ri under her roof.
A nostalgic flashback unfolds, revealing Neop-deok's prophecy that Yoon Gap's life would be cut short before he turned thirty. In the present, Mrs. Yoon expresses her gratitude to Yeo-ri for rescuing her son, a gesture that only deepens Yeo-ri's sense of guilt.
That night, Yeo-ri finds herself on her knees, praying earnestly for Yoon Gap's wandering soul. Another memory surfaces, painting a vivid picture of the village folk's brutal mistreatment towards Yeo-ri for bringing Gangcheori into their midst. Amidst the chaos, Yoon Gap stood as her sole protector, shielding her from their wrath. When Mrs. Yoon decided to relocate to Hanyang, Yoon Gap extended an invitation to Yeo-ri, which she declined, fearing Gangcheori might target him next.
Currently, Gangcheori taunts her, yet she stands unintimidated, knowing he can no longer ensnare her. She detests his possession of the man she cherishes, a man she loathes him for targeting. Determined, she devises a plan to reconcile Yoon Gap's soul with his flesh and storms away. warmth and kindness, her purity stunning him and igniting a belief that she could redeem him from his dire fortune. However, his current sentiments towards her have morphed into an unhealthy obsession, as he clings to her, reluctant to release her.
The subsequent dawn brings a royal decree from the King, instructing Head Eunuch Kim to monitor the "amnesiac" Yoon Gap. Kim, in turn, orders Gangcheori to return, but Gangcheori resists, desiring only to slumber through the day. Yeo-ri cunningly manipulates him into complying by declaring her intention to seek Yoon Gap alone within the palace haunted by spirits. Gangcheori, in a foul mood, makes Kim's existence miserable, disregarding commands and attempting to trail Yeo-ri.
Meanwhile, Yeo-ri stealthily deserts her post to ensnare the drowned spirit. Concurrently, a blind shaman conducts a ritual to capture the entity possessing the Crown Prince, as the King and Queen anxiously keep vigil beside their unconscious son.
Yeo-ri commands the drowned spirit to divulge the whereabouts of Yoon Gap. The spirit responds chillingly, asserting that Yoon Gap's soul has been consumed by an eight-foot specter. Suddenly, Gangcheori's ears catch the mournful wail once more, realizing it emanates from the eight-foot ghost. As The Haunted Palace Episode 2 concludes, the Crown Prince twists and turns in agony, and when his eyes snap open, they gleam with the malevolent light of the eight-foot ghost.
