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Build a theme party around his favorites. I would plan about 4 games for this age. Does he like dinosaurs? Go on a dinosaur hunt and look for chalk dinosaur foot prints, watch Land Before Time, make dinosaur paper plate masks, make a dinosaur cake, play a game with the kids standing in the circle with a stuffed dinosaur like musical chairs "Round and Round the dinosaur goes, where it stops nobody knows". Does he like trains? Have the kids run around the yard attached to each other like a train, hide train cars in the yard and have them find them, make a train cake, watch Thomas the Train movie, etc.
Also, if you can get or make one pinatas are fun for kids this age. If not, have a penny toss where you throw a hundred pennies in the air and they all scramble to pick them up.
I agree with the theme idea centered around something he likes...Thomas the Train, etc. At 2, having a big elaborate party out somewhere is really not going to be appreciated. He can have just as much fun at home with a few of his little friends....and of course, cake!:-)
I'd just pick a theme, print out some coloring pages related to the theme, have age-appropriate stuff out for kids to free-play with, and maybe a pull-string pinata. The kids are going to have fun playing at this age, but its still more of a socialization event for families than it is a kid party. So, I'd make sure I had finger/snack food for the adults as well.
If the weather is nice have it outside. Do you have a nearby park or is your backyard a possible good spot? I always revolved my children's parties when they were young around their favorite TV shows (Dora the Explorer, Barney etc.) or their intests (my daughter was into dogs one year, horses another). I would find plates that had that theme, get solid colored napkins and cups, make up a punch (maybe HiC and 7-up or healthy juice), order a cake with the theme, make up little gift bags (bubbles, animal cookies etc.), and think up a few simple games. At that age kids are pretty easy to please.
I think having a 2yr old's party outside of the home can be overwhelming to them and the other children attending. I would keep it small & simple at 2yrs old and wait until he is older to do something at Little Gym,etc...
We didn't do a party for our older daughter outside of the home until she was 5 and our other daughter is 3,she has a Summer bday so we will probably do her "big" 5yr party at the pool we belong to or something....
You can find so many theme ideas in magazines such as Birthday Express,etc...
Have fun and don't stress about what all the other mom's are doing,because you will find that today,it is just a big competetion to see who can have the grandest party for their children...
One more idea - if you don't mind a mess. Let them fingerpaint on waxed paper with chocolate pudding and then since it's warm wash off outside in the sprinkler.
Are there any children in the neighborhood? Invite them over, and/or a couple of kids from his daycare (if he goes), boil up some hot dogs (don't bother with a grill, they don't care ), turn on some funky dance music (we prefer ChaCha Slide by DJ Casper), put some easy open drinks in a cooler and let 'em rip out in the front/back yard. As far as themes, the cake seems to matter to these little tykes so do one up or have one made. Put some chairs out for the parents and you are ready to go! Silly string is fun too Our events somehow turn into neighborhood block parties so be prepared
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), turn on some funky dance music (we prefer ChaCha Slide by DJ Casper), put some easy open drinks in a cooler and let 'em rip out in the front/back yard. As far as themes, the cake seems to matter to these little tykes so do one up or have one made. Put some chairs out for the parents and you are ready to go! Silly string is fun too 
