Dr. Robotnik has stolen the Red Chaos Emerald, causing the other five to "lose balance" and scatter themselves into a parallel universe. As a result of the instability, South Island is now sinking into the ocean. It is up to Sonic and Tails to find the Chaos Emeralds and restore harmony to the universe, or else the innocent residents of South Island will find themselves taking a long swim.

The storyline to Sonic Chaos, like most Sonic stories, revolves around Dr. Robotnik and his quest for world domination via the mythical Chaos Emeralds. The Emeralds are the source of vitality for all living things, but they could be turned into nuclear bombs and laser weapons in the hands of the rotten Dr. Robotnik.