As someone pointed out, it appears that Gemini was regurgitating fanfiction about Encanto 2: https://bsky.app/profile/russellsilva.bsky.social/post/3lef3...

I'm not sure I'd call this a hallucination. With the prompt being simply "Encanto 2", I'm tempted to say that this is working as intended, Gemini is giving the user what information is available on the topic. Of course, it could have shown better judgement that this was not correct information about the actual sequel.