Cain will remind you (as he's done before) that you need to smash Mephisto's Soulstone on the Hellforge. The Hellforge can be found in the River of Flame, which connects to the City of the Dammed, just below the Plains of Despair. You will come to a split in the road at the Rover of Flame. If you meet an angel who tells you to go back, the Hellforge is the other direction. Kill a nasty little guy named Hephasto and everyone around the area, the Hellforge Hammer, will drop. Equip the Hammer and destroy the Soulstone; you'll get some high quality gems. Go back to town, talk to Cain and prep for battle.
It's time to hunt down the big man himself.
You'll need to go back down to the River of Flame and approach the Chaos Sanctuary. Don't forget to activate the waypoint at the River of Flame. The Chaos Sanctuary is just full of bad guys, all of them out to kick your ass. Once you get into the main chamber, you'll need to activate five seals in order to release Diablo. Actually, what you should do is clear the chamber before activating any of the seals, because three of the five seals are going to spawn badass unique NPCs as soon as you activate them. Once you've opened up the seals and killed the last of the NPCs, Diablo will show up. If you are playing multiplayer, it's a good time to go back and make sure you've got room to store extra stuff. Once you kill Diablo, you'll have 90 seconds before the game ends. Once it's over, and you get back to Battle.net, you should be able to get back into your game, but who wants to risk it?
Diablo looks kinda like Godzilla and acts like it when he tries to stomp your ass. He has various distance attacks, the nastiest of which is a lightning breath attack that will basically instantly kill anyone within its path. For melee fighters, Diablo will be your biggest challenge. That lightning breath is horrible, but he does give about a half-second warning before blowing. For mages, keep back from him, and let your magic do the work. Stay at a distance, and you should be able to kill him easily. Once he's dead, it's time to quickly pick up goods and watch the finishing movie. Congratulations, you've defeated Diablo II.