After closing the final Sleeping Keyhole, Riku does not find himself back at the Mysterious Tower; instead, he ends up at the World That Never Was, Organization XIII's hideout, but still in his younger body. He travels a long way until he finds a sleeping Sora, surrounded by dreams of his past. Darkness emerges from him, and that darkness forms a Nightmare called Anti Black Coat. Riku manages to defeat it, but he fails to wake Sora up. Ansem suddenly speaks to him, telling him that Sora cannot be woken up from the darkness of his dreams. He reveals to Riku that he was actually inside Sora's dreams the entire time. A portal of darkness opens up beneath Riku and sucks him inside.
Riku finds himself with Ansem in a black void. Ansem tells Riku that he became a Dream Eater after jumping into Sora's dream to protect him, which he failed to do. Ansem tries once again to tempt Riku into releasing the darkness within him, but Riku doesn't fall for it. Looking at Ansem, he is reminded of the promise he made to Terra many years ago. The two of them fight, and after a fierce battle, Riku manages to beat Ansem again. Ansem's Guardian tries to reach out to him as it fades away, and Riku further recalls his promise to Terra. Afterwards, Riku finds himself back in the real world, but still in his young body. Despite being in the real world, Riku still has his Dream Eater powers, he summons some Dream Eaters to help him reach the Organization's castle.
Riku arrives at Where Nothing Gathers, Organization XIII's meeting room, where he finds an unconscious Sora. The Mysterious Figure appears and tells Riku that he has chosen Sora to be his new vessel. Initially, he wanted to possess Riku, but his resistance to darkness made that impossible. Roxas was another choice, but he ultimately rebelled against the Organization. At last, the boy reveals the true purpose of Organization XIII to Riku: it was created to create thirteen vessels for Xehanort, filling them all with his heart. Ten hooded figures appear to fill the chairs to form the true Organization XIII, among them Ansem, Xemnas, and Xigbar. The boy reveals that he is actually a younger version of Xehanort himself, leaving only two more vessels: Master Xehanort himself and Sora. Young Xehanort explains how his future self entrusted him with the task of collecting different incarnations of himself from throughout time. The present incarnation of Xehanort, the one reborn from the original defeats of Ansem and Xemnas, is about to arrive. After their goals have been fulfilled, the time-travelling Organization members will return to their original time.
Mickey appears and uses Stopza to freeze Young Xehanort in time, but his future self returns just in time. Master Xehanort possesses his younger self, allowing him to move again. Riku is forced to fight the possessed boy, and though he emerges victorious, the battle is not over. Having been ejected from his younger self, Master Xehanort finally returns as an old man. He tells Riku and Mickey of his plan to forge the χ-blade and unlock Kingdom Hearts. He tried to use one pure light and one pure darkness by having Ventus and Vanitas clash, but that plan failed. After that point, Xehanort realized that he had to have seven lights and thirteen darknesses clash, so he manipulated Maleficent into collecting the Princesses of Heart for him. After losing his body, Xehanort's Heartless, Ansem, continued to oversee Maleficent's plan, while his Nobody Xemnas collected the vessels of darkness, i.e. the original Organization XIII. Sora defeated both Ansem and Xemnas, but Xehanort hasn't given up yet. His new plan involves gathering seven Keyblade wielders to fill the role of Guardians of Light, while the true Organization XIII fills the role of the Seekers of Darkness. Mickey tries to guess who the Guardians of Light are: Himself, Riku, Sora, Terra, Aqua, Ventus, and another seventh member. Xehanort corrects Mickey, telling him that Sora and one of the others on his list are now on his side, which means they still need to find three more Guardians of Light.
As Xehanort prepares to turn Sora into another vessel, Riku and Mickey try to stop him, but Ansem and Xemnas get in their way. Xehanort nearly succeeds, but Lea appears at the last second and stops him from possessing Sora, much to Xigbar's annoyance. One of the other Organization members goes to attack him, which Lea manages to block. The Organization member's hood falls off, revealing him to be Saïx. Before the heroes can escape, Ansem summons his Guardian, which grabs Riku and Mickey. Suddenly, Donald and Goofy fall on top of the Guardian, causing it to disappear. This buys them enough time; the Organization members have stayed in the present for too long, so they return to their own time. As they do, Xehanort assures them that this is not the end. He declares that they shall meet at the "fated place" once the lights and darknesses have been gathered...
- All There in the Manual: Ultimania clarified that it was Master Xehanort himself who possessed his teenage self to fight Riku, hence why Mickey is alarmed and questions who he is. It's also how Young Xehanort can wield a Keyblade even though he (supposedly) hails from before he could do so.
- Early-Bird Cameo: The hooded Seekers of Darkness are actually Luxord, Marluxia, Larxene, Vanitas, Dark Riku, and Terra-Xehanort.
- Foreshadowing:
- After Riku defeats Ansem, the Dark Figure reaches out to him in a pose that mirrors Terra summoning his Keyblade. That's because it has Terra's heart.
- Saïx being revealed as one of the Seekers of Darkness is a hint that several members of the original Organization have rejoined the new Organization. III would later reveal that these would be Marluxia, Larxene, and Luxord; with Vexen and Demyx later recruited as reserve members. Xion would also later join after the events of this game.
- Master Xehanort cryptically states that one of Mickey's proposed Guardians of Light (besides Sora) is actually on his side now. III later shows that he is referring to Terra, whose body remained empty after the destruction of Ansem and Xemnas, so Master Xehanort filled it with his heart, recreating Terra-Xehanort.
