At the beginning of 2259, Captain John Sheridan replaces Sinclair as the military governor of the station. He and the command staff learn that the death of President Santiago was actually an assassination masterminded by Vice President Clark (who assumed the Presidency upon Santiago's death). A conflict develops between the Babylon 5 command staff and the Psi Corps, an increasingly autocratic organization which oversees and controls the lives of human telepaths. Commander Ivanova, the second-in-command of the station, is secretly a latent telepath who has illicitly avoided registering with the Psi Corps.　　The Shadows, an ancient and extremely powerful race who have recently emerged from hibernation, are revealed to be the cause of a variety of mysterious and disturbing events, including the attack on the Narn outpost at the end of 2258. Centauri Ambassador Londo Mollari unknowingly enlists their aid through his association with the mysterious Mr. Morden in the ongoing conflict with the Narn. The elderly and ailing Centauri emperor, long an advocate of reconciliation with the Narn, dies suddenly while visiting Babylon 5. A number of conspirators, including Londo Mollari and Refa, take control of the Centauri government by assassinating their opponents and placing the late emperor's unstable nephew on the throne. Their first act is to start open aggression against the Narn. After a full-scale war breaks out, the Centauri eventually conquer Narn in a brutal attack involving mass drivers, outlawed weapons of mass destruction. Towards the end of the year, the Clark administration begins to show increasingly totalitarian characteristics, clamping down on dissent and restricting freedom of speech. The Vorlons are revealed to be the basis of legends about angels on various worlds, including Earth, and are the ancient enemies of the Shadows. They enlist the aid of Sheridan and the Babylon 5 command staff in the struggle against the Shadows.

　　The Psi Corps and President Clark, whose government has discovered Shadow vessels buried in Earth's solar system, begin to harness the vessels' advanced technology. The Clark administration continues to become increasingly xenophobic and totalitarian, and uses a military incident as an excuse to declare martial law. This triggers a war of independence on Mars, which had long had a strained political relationship with Earth. Babylon 5 also declares independence from Earth, along with several other outlying Earth Alliance colonies. In response, the Earth Alliance attempts to retake Babylon 5 by force, but with the aid of the Minbari, who have allied with the station against the growing Shadow threat, the attack is repelled.　　Becoming concerned over the Shadows' growing influence amongst his people, Centauri ambassador Londo Mollari attempts to sever ties with them. Mr. Morden, the Shadows' human representative, tricks him into restoring the partnership by engineering the murder of Mollari's mistress while putting the blame on a rival Centauri House. Open warfare breaks out between the Shadows and the alliance led by Babylon 5 and the Minbari. It is learned that genetic manipulation by the Vorlons is the source of human telepathy, as it is later discovered that Shadow ships are vulnerable to telepathic attacks. Displeased at the Vorlons' lack of direct action against the Shadows, Captain John Sheridan browbeats Vorlon ambassador Kosh Naranek into launching an attack against their mutual enemy. Kosh's deeds lead to his subsequent assassination by the Shadows.　　Former station commander Jeffrey Sinclair returns to Babylon 5 to enlist the aid of Captain Sheridan, Delenn, Ivanova and Marcus in stealing the Babylon 4 space station and sending it 1,000 years back in time to use it as a base of operations against the Shadows in the previous Minbari-Shadow war. Undergoing the same transformation as Delenn at the end of Season 1, Sinclair transforms into a Minbari and is subsequently revealed to be the actual Valen of Minbari legend, rather than a reincarnation. Spurred by the reappearance of his assumed-dead wife (who now works for the Shadows), Sheridan travels to Z'ha'dum, the Shadow homeworld, in an attempt by them to recruit him. However he instead destroys their largest city in a kamikaze nuclear attack, and is last seen jumping into a miles-deep pit to escape the explosion. Garibaldi, during a fight with Shadow vessels, goes missing.