Approximately 4,000 years ago, the Chaos and Master Emeralds were kept at an altar near the territory of a clan of echidnas called the Knuckles Clan. Tikal, the daughter of Chief Pachacamac, befriended the Chao that lived at the altar along with their protector, the water god Chaos. Seeking to expand his clan's territory, Pachacamac plots to steal the Chaos Emeralds and use their power to defeat his rivals, later revealed to be the Nocturnus clan. Although Tikal and the Chao stood against him, he ordered his soldiers to charge anyway, resulting in the Chao being injured. This angered Chaos, who transformed into a giant, horrifying monster and killed all of the echidnas with the exception of Tikal. Tikal sealed herself away in the Master Emerald along with Chaos, and the magic caused the area surrounding the shrine to become Angel Island, also known as the continent in the sky.
In the present day, Dr. Ivo "Eggman" Robotnik learns of the legend of Chaos and seeks out the Master Emerald and shatters it. Thus, freeing Chaos. Eggman plans to control Chaos, and use its destructive powers to collect the Chaos Emeralds and conquer the city and turn it into "Eggmanland/Robotnikland." Also, Eggman has created the E-Series robots to help him in his goal.
The next morning, Sonic is relaxing by a pool until he sees a plane spinning out of control in the sky. What he realizes that the plane's pilot is his sidekick Tails! Tails crashes into Emerald Coast, which prompts Sonic to race down the coast to rescue his little buddy. After rescuing him, Tails reveals that his new plane is powered by a Chaos Emerald. Tails asks Sonic to come with him to his workshop in the Mystic Ruins so that he can show him something he's been working on. Sonic and Tails travel to the Mystic Ruins, but not without being confronted by Dr. Eggman, who demands that Sonic and Tails to hand over the Chaos Emerald. Eggman transforms his floating vehicle into the Egg Hornet. Sonic defeats it, but Eggman was able to steal the Chaos Emerald from Tails. He calls forth Chaos, the monster Sonic fought earlier, and feeds him the Chaos Emerald. He explains that every time he feeds Chaos one of the Chaos Emeralds, its power will be absorbed and Chaos's power increases. With all 7 Emeralds collected, Chaos will be invincible. Sonic and Tails decide to counter Eggman's plans by beating him to the remaining Chaos Emeralds.
Sonic and Tails head to Windy Valley and retrieve a Chaos Emerald. They later returned to Station Square and found another one in Casinopolis. After leaving the place, Sonic encounters Eggman again, and drops one of the Chaos Emeralds. Before Sonic could grab it, Eggman sprays him and Tails with sleeping gas, thus successfully capturing the Chaos Emerald. The next morning, the duo go to Icecap in the Mystic Ruins to find another one.
After Sonic and Tails found the Chaos Emerald, they run into Knuckles, who believes Sonic has retrieved some of the Master Emerald's shards. The two fight, and they drop both of the emeralds. Eggman appears again and takes them both. Then Knuckles realizes that Eggman had tricked him, much to Sonic's annoyance. Eggman gives the Emeralds to Chaos, who evolves into Chaos 4. Sonic fights him in the pond, and after defeating him, a massive flying airship called the Egg Carrier appears and Eggman escapes. With Knuckles returning to find the missing pieces of the Master Emerald, Sonic and Tails chase after Eggman on air with the Tornado. Unfortunately, it loses its wing in the process and crashes into the Mystic Ruins.
Separated from Tails, Sonic lands in Station Square, where he runs into Amy who asks that he help her protect "Birdie". After that, a large robot named "ZERO" arrives and Sonic and Amy head into Twinkle Park. Later on the night, Sonic realizes that Amy is nowhere to be seen and begins searching for her throughout Speed Highway. Morning rises, and Amy is kidnapped by ZERO, leading Sonic to chase after the robot to the Mystic Ruins. The Egg Carrier arrives and Amy is taken to it. Sonic chases it around Red Mountain and Tails shows up with the Tornado 2, powered by a Chaos Emerald. The friends give chase to the Egg Carrier.
Sonic and Tails land on the Egg Carrier, but their journey was sabotaged by Eggman, who transformed the Egg Carrier into a different shape, leaving them to go through the Sky Deck. The heroes find Eggman and Amy, but Eggman has taken the Chaos Emerald from the bird Amy was guarding. He summons E-102 Gamma to fight off Sonic and escapes. Before Sonic could finish off Gamma, Amy prevents him from doing so because the robot helped her. Tails informs the others that the Egg Carrier is losing altitude, so Sonic tells Tails to take Amy to safety while he goes after Eggman.
He finds Eggman along with Chaos, who has already absorbed 6 of the Chaos Emeralds. Sonic sees that a large purple cat named Big wants to rescue his frog, simply named "Froggy". Sonic agrees to help him save him. After Sonic defeats Chaos 6, Knuckles arrives to see what was going on, but Eggman leaves the Egg Carrier, and Sonic follows behind.
Sonic mistimes his jump and lands in the jungles of the ruins. While exploring some of them in Lost World, he's taken back to the point of time when Tikal and the Emerald shrine are under attack. Before he could learn anything, Sonic is sent back to the present time. He follows Eggman into his main base, Final Egg, and they have one last battle. After defeating Eggman's Egg Viper, Sonic meets up with Tails and they take another break.
Tails and Sonic head to the Windy Valley and Casinopolis to collect two more Emeralds; unfortunately, one of them is taken by Eggman. The two return to the Mystic Ruins to collect another Emerald at Icecap. Upon leaving Icecap, they met up with Knuckles, who accuses them of stealing the Master Emerald shards. Tails and Knuckles fight, leading him to fumble the two Chaos Emeralds. Taking advantage of the situation, Eggman arrives snatches away the Emeralds, giving them to Chaos. After a battle with Chaos 4 which Tails wins, Eggman escapes in his Egg Carrier. Tails and Sonic give chase in the Tornado, but the Tornado gets shot down in the process.
Tails lands in Mystic Ruins, only to find out that Sonic is missing. After a flashback about the "good old days", Tails decides to do without Sonic and ventures into the jungle in search for a Chaos Emerald to rebuild the Tornado. He eventually finds one but runs into Froggy, who swallows it. After giving chase through the Sand Hill, Tails catches up with Froggy, but is taken back in time and meets Tikal. When returned to the present, Big accidentally gives Tails a shock, causing him to lose grip of Froggy as a result. Despite this, Tails returns to his workshop to built the Tornado 2, and Tails departs.
During the flight, Tails meets up with Sonic at the peak of Red Mountain and the two chase the Egg Carrier for the second time. Upon landing, Eggman immediately activates the transformed state that deactivates the monorails, prompting Sonic and Tails to go through the Sky Deck. They find Amy and Eggman, whom the latter takes the Chaos Emerald from "Birdie" and orders E-102 Gamma to take on the heroes as he escapes. Tails defeats Gamma, but before he could finish him off, Amy prevents him from doing that, and tells him that Gamma helped her, so Tails agrees not to hurt him. Suddenly, the Egg Carrier begins losing its altitude. Sonic tells Tails to take Amy to safety while he goes after Eggman.
With the Egg Carrier collapsed, Tails and Amy make it safely to Station Square. Amy bids goodbye to Tails, soon after Eggman (having been defeated by Sonic) crashes nearby the train station. Knowing that Chaos is defeated and the Egg Carrier is ruined, he launches a missile to destroy Station Square, but it turns out to be a dud. Angered, Eggman blasts the doors of a skyscraper and threatens to detonate the missile. Realizing that the fate of the city is in his hands, Tails plucks up courage and chases after Eggman through Speed Highway. Tails reaches the missile before Eggman and deactivates it. Frustrated, Eggman unleashes an Egg Mobile - the Egg Walker, and prepares to annihilate Station Square. All of the citizens run for shelter, leaving Tails, without the help of Sonic, to battle Eggman's machine. In the end, Tails wins and the citizens cheer. While heading back to the workshop in Mystic Ruins, Tails meets up with Sonic to end the story.
Knuckles finds a few pieces in Speed Highway and Casinopolis, but is flashed into the past to a place he's never seen before, but is somewhat familiar to him. He overhears a conversation between Tikal and her father Pachacamac. Tikal tries to stop him from invading someone's "sacred grounds," but Knuckles returns to the present before learning anything.
He then spots Eggman heading into an elevator in the Station Square hotel. He notices the shine in Eggman's hand and believes it to be a piece of the Master Emerald so he follows Eggman. As Knuckles confronts Eggman, he realizes that Eggman was holding a gray Chaos Emerald, not a Master Emerald shard. Eggman calls forth Chaos and gives it the Chaos Emerald, transforming it to Chaos 2. Knuckles fights Chaos 2, and after winning the battle, Eggman tells Knuckles that Sonic is after the emerald pieces. This leaves Knuckles wondering why Sonic would want them. He then heads into the Mystic Ruins.
After finding three more Emerald shards from Red Mountain, Knuckles finds Sonic and Tails in possession of the green Chaos Emerald. Knuckles believes it to be the piece of the Master Emerald shard and he and Sonic duke it out. It turns out that this was all a trick from Eggman so he could nab the two emeralds they had. He gives them to Chaos, causing him to transform into Chaos 4. Knuckles does eventually defeat him. While Sonic and Tails go after the Egg Carrier, Knuckles goes alone to find the rest of the pieces of the Master Emerald.
Around the Mystic Ruins jungle, Knuckles finds three more shards in Lost World, and is sent back to the past. He meets Tikal again, and is sent to his time right in front of the altar for the Master Emerald. Knuckles remembers that he must restore the pieces back together. After restoring them, he finds out that the restoration is incomplete, and the last three shards are on the Egg Carrier, but Knuckles has no idea where the fortress is. As he walks across the bridge, he spots E-102 Gamma heading to the jungle. He decides to follow the robot to the jungle and into the base. The Egg Carrier takes off.
Knuckles arrives on board the Egg Carrier and eventually finds the last shards on the Sky Deck, but ends up getting sent to the past for the third time, this time with the altar surrounded by flames. He walks over to Tikal and attempts to find out what's going on; Tikal rushes to the Emerald, causing him to return to his time. He finds Sonic and Eggman, and Eggman escapes with Sonic on his heels. Knuckles could see that Sonic has everything under control, and before he leaves, he is encountered by Chaos 6. Knuckles defeats Chaos 6, causing it to relinquish the Chaos Emeralds and retreats. The Egg Carrier loses its balance and self-destructs, but Knuckles flies back to Angel Island.
Back at the Island, Knuckles finally restores the Master Emerald to its normal state, allowing it to hoist Angel Island to float again. Knuckles rests again, accepting his role as the guardian and is finally at peace once more.
After a stroll through the town, she runs into Sonic and asks him to guard the bird, though Sonic strongly declines. She follows him to the entrance of Twinkle Park. Unfortunately, ZERO appears and before Sonic can do battle with it, Amy notices a sign that apparently says "Cute Couples get in free" and cheerily enters the park while Sonic follows reluctantly. After making her way through Twinkle Park while avoiding ZERO, she makes it back to Station Square and finds Sonic gone missing. Before she can continue with her search, she is captured by ZERO.
Amy is taken to a cell aboard the Egg Carrier where she is guarded by E-102 Gamma. He demands she hand him the bird, but she refuses. She then demands that he tell her why he wants the bird, but he himself does not know. She pleads with Gamma to help them, but he questions why she cares for something she knows nothing about. Amy sympathizes with the robot and says that love is not a part of his programming. The bird flies out of the jail cell and looks Gamma in the eyes. Gamma then tells them to escape and opens the cell. He tells them it is dangerous and that they'll be at the Mystic Ruins base soon. Amy thanks Gamma and becomes friends with the robot. She comes to a room and plays through a game where she gets the Warrior's Feather.
While venturing through Hot Shelter, she has another run-in with ZERO. When she grabs a hold of the balloon, she drifts back in time and meets Tikal after finding the Emerald Shrine. Amy returns to the present and makes it to the deck and is cornered by Eggman. Fortunately, Sonic and Tails come to her rescue. Unfortunately however, Eggman grabs the bird and take the Chaos Emerald around its neck. He calls out Gamma who is ordered to destroy them. After fighting Gamma, Sonic tries to finish him off, but Amy defends the robot, telling Sonic he helped her escape. Tails informs Sonic and Amy that the Egg Carrier is losing altitude, Sonic sets off to find Eggman, and Amy tells Gamma to be free. Gamma asks why she is helping him, to which she responds that she promised they'd be friends. She then leaves with Tails as the Egg Carrier crashes.
Amy and Tails return to Station Square; Amy waves goodbye to Tails and goes to Mystic Ruins to help the bird find its family. After searching through the jungle she finds the bridge leading to Eggman's base. She goes through Final Egg and once again meets with ZERO, but escapes. After deducing that the bird escaped from the Egg Carrier, she returns to the now sunken Egg Carrier. The bird finds its family, but ZERO knocks out the bird with its telescopic fist. After noticing the perpetrator of the attack, Amy becomes outraged and prepares to fight ZERO. After destroying the robotic pursuer, the three birds are reunited and Amy vows to impress Sonic, and hopefully make him respect her.
Morning comes, and Big arrives at Station Square, where he sees the crazed Froggy go in the sewers. He hoists a black car, and follows Froggy to Twinkle Park. Big manages to fish Froggy out, only for the amphibian to run away. Big goes to Ice Cap. He fishes Froggy out again, but the insane frog retreats yet again.
Big returns to Station Square and finds Froggy in Emerald Coast. After fishing him out, Big turns to go home, only for E-102 Gamma to seize the frog from Big and heads back, pleading him to give Froggy back. Big finds himself in the Egg Carrier, and tries to pick up Froggy's scent, but doesn't succeed. Instead he decides to find him in the Hot Shelter. He realizes that to get Froggy out, He must activate the switch. After doing this and fishing Froggy out for the final time. A joyful Big turns to exit, but is transported to the past. He encounters Tikal in the Emerald shrine and returns to his normal time.
Big and Froggy exit the interior of the Egg Carrier in where they find Chaos 4. Eggman, in possession of a Chaos Emerald, arrives and orders Chaos to grab the Emerald from Froggy. Froggy spits out the Emerald and Chaos absorbs the two Emeralds, causing him to transform into Chaos 6. Froggy then hops into Chaos's body, restoring the beast's tail. Sonic arrives and realizes Chaos has transformed in his sixth form. Big carefully fishes Froggy out of Chaos's body and escapes under Sonic's orders.
Suddenly, the Egg Carrier is about to lose altitude, but Big spots the Tornado 2 and use it to return to the Mystic Ruins jungle. The flying fortress self-destructs and crashes into the sea. Big and Froggy finally find home and enjoy peace again. Froggy is no longer insane, and Big is celebrating.
A moment later, Eggman announces to Gamma and his younger brothers, E-103 Delta, E-104 Epsilon, and E-105 Zeta, to find and capture Froggy, who's been driven insane by Chaos' tail and has swallowed a Chaos Emerald. Gamma heads to the Emerald Coast, takes Froggy and just when he was going to return, a blinding flash takes him to the past. He tries to determine the location, but to no avail. He heads to the Emerald altar and lowers his cannon at the presence of the Chao. Tikal rushes to their aid, but she realizes Gamma's not part of the Knuckles clan and gives him some helpful information about the Chaos Emeralds, the Chao, and Chaos. Gamma returns back in time.
After that, Gamma and his brothers argue over whose frog is the one, but stop when Eggman walks in. Irritated, Eggman tells them that the frog he wants is crazed, has Chaos's tail and even ate a chaos emerald. He soon settles when he spots Froggy in Gamma's hands. He congratulates Gamma for his capture and dismisses Delta, Epsilon, and Zeta for their failure. He then tells Gamma to find the bird with Amy, then departs. Gamma accidentally goes into the wrong room, where he spots Beta being repaired and upgraded.
He quickly gets to the dungeon where he encounters Amy and the bird, and demands her to give him the bird. Amy persistently refuses and tells him that love isn't part of his programming, which Gamma angrily replies that she knows something that she doesn't know. Then the bird flies to Gamma and looks him straight in his eyes, prompting him to order them to flee and open Amy's cell.
Gamma then heads to the attendance room, where Eggman orders him to get the Jet Booster from the ammunition room. After that, Gamma heads to the main bridge of the Egg Carrier where Sonic, Tails, and Amy were on board. Gamma engages Sonic in battle. Just as he is about to finish off the blue hedgehog, Amy interferes, reminding him that he helped her escape and that he should ditch Eggman, much to Sonic's surprise. Suddenly, the Egg Carrier is going to lose altitude. Sonic races off after Eggman, while Amy says that she and Gamma are friends. Gamma asks why she's helping him; she replies that friends always help one another. Gamma, Tails and Amy escape as the Egg Carrier self-destructs and crashes into the sea.
Arriving to the Mystic Ruins, Gamma realizes Amy's words and decides to turn against Dr. Eggman, thus beginning his own quest to find and save his brothers. Gamma heads to Windy Valley, and spots Delta and defeats him. Later, he heads to Red Mountain and finds Epsilon and defeats him as well. After that, he realizes Zeta and Beta the E-series remaining and are located at the Egg Carrier. Gamma enters the Egg carrier and opens the doors to the Hot Shelter, spotting Zeta, who has transformed into a large cylinder-like monster. Gamma engages in battle, sears Zeta's head off and gets out of the Hot Shelter. He spots Beta, upgraded to Mk. II, flying towards a field. He heads to it and engages him in battle. After a long battle, Beta crashes to the ground. Gamma walks over, but Beta shoots him at point-blank range in the face, sending him back. Beta is destroyed and releases a bird, just 20 seconds before Gamma self-destructs himself. This brings a tragic end to Gamma, but he has set all the animals free and accomplished his duty.
All of a sudden, Angel Island is falling again. Knuckles assumes that the six Chaos Emeralds he brought with him may be the cause of this and decides to give them to Sonic as advice. He spots Eggman lying on the ground, wondering what happened. Before Eggman could explain to Knuckles about Chaos, the water god appears and attacks them both, stealing the six Chaos Emeralds.
In the Mystic Ruins, Sonic is relaxing by a tree when Tails tells him that Angel Island has fallen. When they arrive, they spot Knuckles and Eggman in serious pain and exhausted. Knuckles informs Sonic and Tails that Chaos has survived and has stolen the Chaos Emeralds. Eggman heads off on his mobile and searches the jungle for a replacement fortress. Knuckles then tells Sonic about Chaos' ferocity and states that if he gets the last Chaos Emerald, death will come. Sonic knows that he'll find it before the monster does, but is sent to the past for the last time. This time he spots the Altar under attack from the Knuckles Clan, who knocks Tikal to the ground and injures many Chao. This enrages Chaos, who devours the Chaos Emeralds and goes out of control. Sonic heads over to Tikal and asks if she's okay. Tikal realizes Chaos is wreaking havoc and seals him and herself within the Master Emerald for all eternity, in order to stop him before it is too late.
Sonic returns to the present day. Tails says that they have to get the last Chaos Emerald still on board the Tornado 2. They head over to Big's hut in the jungle and spot the bioplane. Just when about to get the emerald, they were too late. Chaos takes the last Emerald and goes on a rampage in Station Square, flooding the whole city.
Sonic, who now realizes how vicious Chaos really is, spots the Egg Carrier 2 from the corner of his left eye and knows that Eggman is after the violent beast. Eggman attempts to engage in combat, but Chaos destroys the flying fortress with his massive beam of energy. Sonic is getting aggravated with Chaos's ferocity, but Tikal arrives. She states that her heart's been always with the Master Emerald as well as Chaos', but he's full of anger and sadness. If this isn't stopped, he will bring destruction to the Earth like he did centuries ago. Chaos then discards the Chaos Emeralds which are now colorless and powerless. Tikal demands that Chaos be sealed back to the Master Emerald immediately. Sonic refuses, telling her that doing so won't change how Chaos feels inside. His anger will remain and history will just repeat itself as it did before. Instead, Sonic comes with the solution in destroying the anger and rage within Chaos' heart.
Tails, Knuckles, Amy, and Big gather the Chaos Emeralds. Tails states to Sonic that Chaos has absorbed the Emeralds' negative power, and that Sonic should be able to harness their positive power. Closing his eyes and using the positive energy of his friends and the citizens of Station Square, Sonic restores the Chaos Emeralds to their normal state and transforms into Super Sonic. He then flies off to engage the colossal beast in battle.
Two phases later, Chaos is reverted to his normal form, Chaos 0; his anger and rage has finally vanished. He spots a flock of Chao, and knows of their peacefulness. Tikal arrives and tells Chaos that the Chao have been living peacefully with mankind for a long time and continues to this very day; She says that the fighting is over, harmony has been restored, the circle of life moves on. Tikal thanks Sonic and the others for their help, and she and Chaos leave to parts unknown. Seconds after, Eggman flies away, and Sonic runs off to catch Eggman in search of more adventures.