The plot of this game is focused on the capturing of Skylands' most wanted villains that have escaped from Cloudcracker Prison. The story begins with Master Eon introducing the player to the world of Skylands as well as its protectors, the Skylanders. The veteran Portal Master then reveals that long ago, Skylands was ruled under the vicious grip of the most powerful villains called the Doom Raiders who caused havoc all over Skylands from their hideout in the Savage Badlands. Eventually, The Doom Raiders met their match when the Trap Team found their hideout, defeated them, and remanded them to Cloudcracker Prison.

Years later, Kaos, the primary antagonist, releases the Doom Raiders and other villains by blowing up Cloudcracker Prison using his Evil Frequency Modulator of Evil Doom. The destruction of the prison also caused the Trap Team to be sent to Earth as well.

At the same time, all characters from the previous games are at the opening of the Skylanders Academy presented by Buzz, who aids the Skylanders in catching The Gulper at Soda Springs, presumably not knowing he and the other villains were broken out.

After capturing The Gulper, Buzz and the Skylanders are informed of Cloudcracker Prison's destruction by the creator of the Academy, Mags, and set to capture the remaining villains. Meanwhile Kaos and the Doom Raiders are gathered at his new base, but the Doom Raiders are quick to reject Kaos, not even taking a listen to his plan. The leader of the Doom Raiders, the Golden Queen, allows Kaos and Glumshanks to stay, only to come up with a plan of her own, stating its "solid gold".