After the events of Spyro's Adventure, on Earth, a toy store called Super Toy Planet has just closed shop for the day. Amongst the toys stood the frozen toy form of Kaos, who was recovered and placed inside the toy store. He soon breaks free of his toy prison due to his status as a Portal Master, and recalls Master Eon and the Skylanders banishing him to Earth. Kaos then discovers five of the Skylanders (Spyro, Stealth Elf, Gill Grunt, Eruptor, and Stump Smash) frozen in toy form inside a plastic display, and he proceeds to taunt them while the Skylanders could do nothing but make idle threats to the evil Portal Master. Kaos is soon contacted by his butler, Glumshanks, who has been looking everywhere for Kaos since his exile. Seeing a nearby Portal of Power, Kaos uses it to return to Skylands, ignoring the warnings of Glumshanks that Portal Masters are not supposed to use the portal on themselves.

Upon his arrival, Kaos landed in a very ancient part of Skylands and inadvertantly reactivated the Arkeyan Conquertron, quickly learning that if he could acquire something known as the Iron Fist of Arkus, he could not only reactivate the entire army of Arkeyan robots, but also command them. With that kind of power, Kaos would be unstoppable.

Master Eon greets the player, who is the new Portal Master that will lead the Skylanders. He explains to them about the world of Skylands and the backstory of the Giants, the first original Skylanders who fought against the tryannical Arkeyans for the freedom of Skylands. A climatic battle occured as the Giants defeated the Arkeyan King and removed the source of his power, the Iron Fist of Arkus, in order to fully stop the Arkeyan empire. However, in a form of sacrifice, the Giants were swept from Skylands and haven't been seen since, until a Giant was recovered by the new Portal Master. Master Eon then goes on to explain that he has summoned the new Portal Master after sensing a new evil rising and that Skylands needs their help. He reassures the new Portal Master that they won't go alone, and reveals that Flynn and Cali will embark on a journey with the Skylanders and Giants to save Skylands from the threat.

Now is the time, Portal Master...