I started on Normal. I always start on Normal. Now that I have played some of the game and have the mechanics down, can I switch difficulties for my current character?
Torchlight 2 Difficulty Change – Can Difficulties Be Changed After Starting?
torchlight-2
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Best Answer
Yes, it is possible. You need to create a LAN game and then you can specify the difficulty there. A couple of important notes: if you tick "reroll world" it will generate a whole new world but I think quest progress is still saved. Also, I've heard tell that even if you don't reroll the world that all the monsters in your LAN game will be respawned. I haven't done this yet so I can't give you my experiences.
Here is a forum thread at the official Torlight 2 forums explaining this.