In this paper, a notion of a principal $2$-bundle over a Lie groupoid has been introduced. For such principal $2$-bundles, we produced a short exact sequence of VB-groupoids, namely, the Atiyah sequence. Two notions of connection structures viz. strict connections and semi-strict connections on a principal $2$-bundle arising respectively, from a retraction of the Atiyah sequence and a retraction up to a natural isomorphism have been introduced. We constructed a class of principal $mathbb{G}=[G_1rightrightarrows G_0]$-bundles and connections from a given principal $G_0$-bundle $E_0rightarrow X_0$ over $[X_1rightrightarrows X_0]$ with connection. An existence criterion for the connections on a principal $2$-bundle over a proper, etale Lie groupoid is proposed. The action of the $2$-group of gauge transformations on the category of strict and semi-strict connections has been studied. Finally we noted an extended symmetry of the category of semi-strict connections.