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Factions now consist of the Militia/Paladins of Khorinis, the Fire Novices/Fire Mages, and the Mercenaries/Dragon Hunters. With the penal colony and its barrier a thing of the past, the surrounding lands have been invaded by orcs. Over the course of the story, The Nameless Hero reconnects with old friends from the first chapter while adjusting to changes in the faction structure. Now located outside the city of Khorinis, he is asked by Xardas to investigate a new evil that threatens Khorinis and the surrounding lands. The second part of Gothic sees The Nameless Hero resurrected by Xardas into a new setting. The Nameless Hero banishes The Sleeper at the cost of nearly losing his own life. The hero was helped by an orc shaman named Ur-Shak, who made an artifact that would prevent the orcs from attacking him. Ultimately, he galvanizes the character toward the ultimate goal of stopping the summoning of a beast known as The Sleeper, but the entrance was guarded by a camp of orcs. Xardas, a necromancer, plays a central part to the survival and advancement of the character. Also connected with these factions are the water and fire mages, of which Xardas is an outcast. Some of these characters are connected with the various factions of the game, which include the Old Camp, the New Camp and the Swamp Camp. Over the course of the story, The Nameless Hero becomes acquainted with several characters, the most notable of which are Diego, Lee, Cor Angar, Lester, Gorn, Lares, Milten, and Xardas. The colony takes the form of a natural landscape encased in a large magical shield known as The Barrier, much like an impenetrable dome. The first part of Gothic tells the story of The Nameless Hero, a man thrust into the events of a penal colony. The Nameless Hero can also now wield dual weapons or use a shield. Navigation and combat are more mouse-centric, with each mouse button having a different combat action.
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The controls have been altered slightly with a stronger focus on action. The game places a special focus on the interactivity of the environment. Dialog changes according to in-game actions and behavior. The player is able to take advantage of missions to allow either side to take over towns. The remaining factions are the Rangers, the Nomads and the people of Nordmar. While there are six factions in the game, only three are joinable: the Rebels, the Orc mercenaries and the Hashishin. The game is reputation centric allowing the player to side with a faction. The player must complete quests and slay wild animals and monsters to earn experience and improve skills.