Sonic the Hedgehog was an extraordinary success, and gave Sega and the Genesis the muscle it needed to stand up to Nintendo, particularly in North America and Europe. As such, Sonic the Hedgehog 2 was planned to come out in time for the holiday season of the following year, on November 24, 1992, dubbed "Sonic 2sday". The game was developed by Sega Technical Institute, a newly formed team in San Francisco, helmed by longtime designer Mark Cerny, developer of the arcade game Marble Madness. Though some of the staff was American, there were many members from the original Japanese Sonic Team who relocated to the USA to work on this game, including Yuji Naka (who had previously just quit Sega due to clashes with management, but was rehired back into this new department) and level designer Hirokazu Yasuhara. The American designers had previously worked on Kid Chameleon. Sonic's speed in this game was also featured in advertisements as an example of "Blast Processing", a marketing term for a nebulous technique of the Genesis that allowed for faster movement over the SNES.

The premise here is that Dr. Robotnik has created a gigantic space station called the Death Egg, and it's up to Sonic to run through West Side Island to stop him. He's joined by a new character, Miles "Tails" Prower, a two-tailed fox who's sort of like Sonic's adopted little brother. During gameplay, Tails mostly shadows Sonic's movements, and can also grab extra things like rings or inflict extra damage on enemies. Though he can get hurt, he doesn't lose any rings when hit (though there are exceptions), and even when he falls off the screen, he automatically flies back to Sonic's side. If a second controller is hooked up, it can even be used to guide Tails, effectively giving the game a two-player mode. The camera still follows Sonic though, so it's easy for Tails to get left behind (and eventually get automatically guided back to Sonic), but it's a good role for a younger player. A new move called the spin dash has been added too, which lets Sonic rev up in place and then quickly zoom off, making it easier to get over certain obstacles. Though finding areas to run and build up speed was one of the main elements of the original game, it ultimately didn't add much, and using the spin dash is just quicker and easier.