On October 31, 1989, Michael Myers and his niece Jamie Lloyd (J.C. Brandy) have been abducted by a mysterious stranger in black at the Haddonfield Police Station. Six years later, teenager Jamie (J. C. Brandy) has been impregnated and her baby is born on Halloween Eve. The baby is taken away by the "Man in Black" who appears to be the leader of a Druid-like cult. Later, a midwife (Susan Swift) helps Jamie escape with her baby and is soon killed by Michael (George P. Wilbur). Jamie and her baby flee in a stolen pickup. Stopping briefly at a deserted bus station, Jamie makes a call to a Haddonfield radio station to warn them that Michael is about to return home, only to be ignored by the radio D.J. Barry Simms (Leo Geter) who is doing a broadcast on the Haddonfield murders.
Meanwhile, Dr. Loomis (Donald Pleasence), now retired, is visited by his friend Dr. Terence Wynn (Mitch Ryan), the chief administrator of Smith's Grove Sanitarium, where Michael had been incarcerated as a boy, who asks Loomis to return to Smith's Grove. During their conversation they overhear Jamie's plea for help on a local radio station. Later, Jamie drives back on the road followed by Michael, who causes her to crash into an old barn. Michael kills Jamie by impaling her on a corn thresher, but finds that Jamie's baby is not in the truck.
Back in Haddonfield, Tommy Doyle (Paul Rudd), whom Laurie Strode babysat in the first film, now lives in a boarding house run by Mrs. Blankenship (Janice Knickrehm), a mysterious old woman. The family living in the Myers house across the street are relatives of the Strode family: Kara Strode (Marianne Hagan), her six-year-old son Danny (Devin Gardner), her teenage brother, Tim (Keith Bogart), caring mother Debra (Kim Darby) and abusive father John (Bradford English). Ever since seeing Michael Myers as a child, Tommy has been obsessed with finding the truth behind his motives. He finds Jamie's baby at the bus station, takes him into his care and names him Stephen. Tommy runs into Dr. Loomis and tells him that the Strode family living in the Myers house. The two believe Michael has returned to Haddonfield.
After Dr. Loomis tells her that she is living in Michael's home, Debra calls John to tell him she wants to leave Haddonfield but is killed by Michael. Later, Kara returns home to find Danny in his room with Tommy, whom he had met while on his way home. The three go to the boarding house, where Tommy reveals that he believes Michael has been inflicted with the curse of Thorn by a Druid-inspired cult. Thorn is an ancient Druid symbol that represented a demon that spread sickness and caused destruction. To prevent this, one child from each tribe was chosen to bear the curse of Thorn to offer a blood sacrifice of its next of kin on the night of Samhain (Halloween). When the corresponding Thorn constellation appears, Michael appears. The curse explains why Michael is out to kill his family and also accounts for his superhuman abilities. Tommy believes that Steven will be Michael's final sacrifice.
While Tommy goes out to look for Dr. Loomis at a party at the Haddonfield Junior College, Mrs. Blankenship reveals to Kara that she was babysitting Michael the night he killed his sister, and that Danny hears the "voice" (from the "Man in Black") telling him to kill just like Michael did, indicating that Danny also possesses the power of Thorn. Meanwhile, Michael kills John and Tim Strode, Tim's girlfriend Beth (Mariah O'Brien), and Barry Simms. After Tommy returns home with Dr. Loomis, the "Man in Black" finally reveals himself to be Dr. Wynn. The "Cult of Thorn" take Kara, Danny, Steven, and Michael to Smith's Grove. There, Loomis confronts Dr. Wynn who credits Loomis for first recognizing the evil power of Thorn inside Michael, which Wynn wants to control and study, and that Jamie's baby represents the dawn of a new age. Loomis is then knocked out by a staff member.
Tommy finds Kara locked in a room in the maximum security ward and frees her. In one of the main hallways, they see Wynn and a team of scientists walk into an operating room to perform an unknown procedure. Tommy and Kara sneak into the adjoining room where they find Danny and Steven. Michael, (presumably angry at being exploited by Wynn and his staff), walks into the operating room with a surgical machete and murders them. Tommy, Kara, and the kids run with Michael in hot pursuit, and hide in a high-tech laboratory. Loomis awakens and goes to aid them. Inside the lab, Kara notices tanks containing human fetuses with a chart of runes and scientific letter codes connected together by the Thorn symbol, suggesting that the cult of scientists have been exploiting the evil power of Thorn for the benefit of medical science. It is implied that they have been trying to clone pure evil using the desired genes that Michael possesses by impregnating their female patients to replicate Thorn in its most powerful form. Stephen is the result of this experiment tested on Jamie and the cult had planned to use Danny to further their research.
Michael breaks into the room. Tommy injects him with a corrosive liquid and beats him into unconsciousness with a lead pipe. As Dr. Loomis, Tommy, Kara, Danny, and Stephen are about to escape, Loomis tells them to go on without him because he has "a little business" to attend to. Back inside the building, Michael's mask is seen lying on the floor of the lab room and Dr. Loomis can be heard screaming in the background, leaving the fate of both characters unknown.

Question: Where was Michael incarcerated as a child?
Answer: Smith's Grove Sanitarium.