The story takes place in a classic fantasy world, except that several half-animal races intermingle with humans in a subversion of What Measure Is a Non-Human?. Also, some modern technology exists. There also used to be a race of dragons in this world, but they were apparently exterminated for unknown reasons centuries ago. The only thing left of them are their fossilized remains, from which a crystal called Chrysm is mined, which is then used to power machines.
At the start, some miners find a baby dragon in a crystal who turns out to be alive. The whelp escapes and assumes the form of a small boy named Ryu. He soon is adopted by a young Tiger-Man named Rei, who assumes Ryu is just another lost orphan like Teepo, another boy he has adopted. The problem is that Ryu's new 'family' make a living as thieves!
Eventually, the kids decide to earn the goodwill of the local townspeople by stealing the money the local mayor has been overtaxing and return it to them. But this backfires when it turns out that he was part of a criminal organization! They send two enforcers, a pair of Unicorn-men named Balio and Sunder, to punish them.
After that brutal battle, Ryu is separated from his new brothers, and decides to travel the land looking for them— Only to run into the Horse Brothers again! They capture him and, discovering he's really a dragon, they try to make money out of him by selling him to the king of the local land (Windia). But when Ryu refuses to show his true form the king, thinking it's a swindle, has all three thrown in the dungeon.
Nina, the king's little daughter, feels sorry for Ryu and tries to set him free. But the Unicorn-Men trick her into releasing them too, only to then try to kidnap her for ransom! Ryu rescues Nina, and she decides to help him find his brothers, but on her own, afraid her parents won't let her. They don't go far before they are captured by Balio and Sunder, however.
The two children escape but end up being pursued by criminals and forced to take the long way around to get back to Windia's capital. In the process, they meet a female inventor named Momo, who joins them. Soon after, Palet, a friend of Momo's late father asks for her help to get rid of a mutant vegetal monster that his chrysm-using produce plant has accidentally created. They do so and when it dies however it "gives birth" to a small onion-like creature that Momo decides to keep, naming it Peco. The plant owner, however, betrays them to the criminals (so the truth of what happened in the plant will not be known by the public) and all four of them are captured.
They are taken to a coliseum where the criminals run an annual "contest of champions," with the winner being granted anything they wish. Nina asks that they be allowed to participate, naively believing Balio and Sunder will let them go if they win. In truth they just want to use the kids to win even more money from the contests (since they know Ryu, being really a powerful dragon, might win the contest against all odds). But they still plan on holding the princess hostage.
Ryu and his friends actually do well until the last duel, in which he must face a Gargoyle-like creature called Garr. He loses to it, but to everyone's surprise, he asks that the kids be freed as his reward. The Horse Brothers are forced to accept.
...Until the kids were out of sight of the people in the Coliseum, that is. They ambush them on their way to Windia, only to have Garr show up and join their side. With his help, the two criminals are finally killed.
Back in Windia, the group decides to travel to a place called 'Angel Tower' where Garr claims Ryu will find what happened to his people, the dragons. Only Nina is forced to stay at the palace, but after being (accidentally?) lured out of the palace by Momo's robot sidekick, she finds out that Garr warned Ryu he might die in the trip to Angel Tower, and, utterly concerned for him, again decides to slip out of Windia without permission to accompany him.
After a long and convoluted series of events involving a road blocked by lava, a fishing town with a broken lighthouse and rescuing faeries in another dimension, the group finally reaches the Angel Tower pyramid.
There Ryu finds out that the Dragon race — known as The Brood — were exterminated by a race called the Guardians, who were supposedly created by God himself to kill the dragons for being too powerful. Even more, Garr is a Guardian, and despite his liking Ryu, he feels that it's his duty to kill him and bury him in the Tower! However, manifesting an unknown, latent power, Ryu beats Garr, and then disappears.
The story continues several years later. Garr captures a dragon in a mine (the same one the game started in). It turns out to be Ryu (now a young man) having apparently been possessed by the spirit of an evil dragon all these years. After helping Ryu beat it, he explains that he was always doubtful of his mission, and after meeting Ryu, even more so. He's been looking for Ryu all this time to atone, but instead is convinced to go ask his "God" why the dragons had to be killed. The two of them set out for Angel Tower to do that.
Along the way, they encounter a "weretiger" monster that had been attacking travelers; it turns out to be Rei, using a power he'd never dared to use before. He thought Ryu and Teepo were dead and had been stalking the local criminal organization for revenge. He joins Ryu and Garr.
They are also soon reunited with Nina (who has grown up nicely) who had been investigating the mayor of Ryu's hometown and arrested him for being part of the criminal organization.
Together, the heroes find and face the criminals' true boss, who turns out to have his own secret power as well. He still dies in the fight.
The group once again sets for Angel Tower. Along the way they encounter Palet again, and discover he's secretly been carrying experiments to bring the dead back to life (specifically his mother) using sap from a sacred Yggdrasil Tree. It's these experiments that ruined the produce plant. Thinking the heroes are trying to stop him, he attacks them and is killed. The kids are then given the grim task of shutting down the machines keeping his mother alive (but mindless).
Eventually, the group reaches Angel Tower. But "God" doesn't answer Garr's call there. Instead, Deis, a half-snake sorceress whom Garr had imprisoned there long ago for trying to stop the dragons' massacre, asks to be released and in return she'll help Ryu find the truth. They agree, and the power she grants him points him out towards the other side of the sea, where no one had ever gone before.
After hitching a ride in a mysterious ship (that turned out to be an automated cargo ship — possibly responsible for all the Schizo Tech that kept washing over into Windia's shores) the party reaches the 'other side of the sea' to find it a desertic land. To their surprise, they find a town of living dragons there — who trapped themselves permanently in human form, as a way to escape the extermination. Their elder claims that Ryu is the predestined hero who will avenge them. He grants Ryu the "Infinity Gene," a crystal that contains the Brood's 'ultimate power' — the reason they were killed by the self-styled god. But not without making Ryu ''kill him'' in battle first.
Thus armed, Ryu and friends venture through the desert and eventually arrive at Myria Station, named after the goddess responsible for these events. The place turns out to be a containment facility of sorts, holding creatures "too dangerous to roam free." This includes a grown up Teepo! It turns out that he, too, is a Brood Prince, and believing that Ryu and Rei had been killed long ago, had a miserable wandering existence until Myria found him. She's convinced him that staying with her is for the best and he's very bitter at the rest of the World. He tries to convince Ryu to stay there with him as well, but he refuses so the two 'brothers' fight and Ryu is forced to kill him.
Finally facing Myria, she reveals her story. She used to belong to a very advanced race that, however, destroyed themselves with their own weapons. The last apparent survivor, she became obsessed with protecting the world. Since then she's been regulating the level of the world's technology and capturing or killing anything she deemed too dangerous to exist — including The Brood. She begs Ryu to stay with her, but is counter argued by — Peco, whom the Yggdrasil tree uses as an avatar to communicate through. Being closer to the land, the trees argue that Myria is being overprotective and hurting the balance of nature. Ryu (and the player) is allowed to decide.
If the player decides not to have Ryu stay at Myria station (for the rest of his life) then the Final Boss fight takes place. When Myria is defeated, her floating headquarters crashes down to the ground. In the process we see Deis appear, and reveal that she is Myria's sister. Whether they are killed in the crash or not is ambiguous. Garr however definitely dies as he cannot exist without Myria's support and turns back into a stone statue.
The rest of the heroes are seen in the end a bit ragged but alive in the desert. Everyone except Peco.
The game ends with what seems to be Peco, buried in the sand, possibly now having taken root and growing into a future Yggdrasil Tree.