Later that same year, TDK was acquired by Take-Two Interactive, resulting in losing the license to make Shrek games. TDK Mediactive announced the game at E3 in May 2003. The game is based on the film Shrek 2 by DreamWorks. Shrek 2 was created by Luxoflux and KnowWonder and published by Activision in 2004. The playable characters are Shrek, Donkey, Puss in Boots, Human Shrek and Gingerbread Man, each with their own unique set of skills.

The story of the game is a compressed version of the movie it is based on. The game is separated into five chapters with a bonus level if the player collects all of the coins in each level. This version is a side-scroller with graphics resembling the Donkey Kong Country series, developed by Vicarious Visions. Shrek has to throw a bunch of thugs into a paddy wagon. Fiona holds a private concert for a flock of black birds she is collecting for a pie (via exploding them by rhythm based button presses). Donkey at one point has to chase a fleeing onion wagon while riding on the back of Dragon. The second type of mini-game, dubbed 'Hero Time', gives one character a challenge to complete, usually emphasizing that character's particular skills displayed in the movie. Challenges that require the player's entire party include having to punch chickens into cook pots or a pen, escorting characters through a stage (Billy Goat Gruff and the three blind mice), and collecting fairies, jewels, etc. Players play mini-games when they are not traveling on hazardous paths from point A to point B. Other chapters have the player acting as a deputy in Far, Far Away Land-collecting bits of Humpty Dumpty, stealing treasure from a troll, helping the police clear out rioting hooligans from the streets, escorting Cinderella while she window-shops for a glass slipper, ridding the town of the Pied Piper's rat infestation, collecting chickens for a stew, or battling Puss in Boots via timed button presses. One chapter requires the player to make sure three blind mice safely make their way to the witch's house. The game is broken into different chapters, each with its own set of goals. Each character has a unique ability that aids them in fighting enemies or moving through the environment (for example, Donkey can destroy obstacles and Fiona can slow down time). In each level, the player controls a team of four characters, and can switch between them at any point. In this version of the game, the player is able to play as Shrek or his friends and travel through 11 levels. GameCube, PlayStation 2 and Xbox versions:

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