Despite being a pivotal presence in the first movie, Dragon’s role was drastically reduced in Shrek 2 – but there’s an interesting explanation to account for her absence. All the Shrek movies create an epic saga that satirizes the fairy tale genre while also becoming a great addition to the category in its own right. The series uses just about every fantasy trope that exists, and one of those hallmarks is what allows Dragon to enter the story in the franchise’s inaugural installment back in 2001. However, after debuting as Princess Fiona’s captor, Dragon all but vanishes from the sequel.

https://screenrant.com/why-dragon-is-hardly-in-shrek-2/