Long time ago, a great war between Orakio and Laya devastated the planet. A thousand years later, a young Orakian prince named Rhys decides to marry the beautiful Maya, his heart's chosen one. But during the marriage ceremony, a strange creature appears and kidnaps the bride. Were those the legendary Layans who kidnapped the princess? Whatever the answer might be, Rhys has to find it out on his own - he must rescue his beloved one.

The gameplay system of Phantasy Star III: Generations of Doom is similar to that of its predecessor in the series: the player navigates a party of characters on a top-down overworld, visiting towns, exploring 2D dungeons, and fighting randomly appearing enemies in turn-based combat. The most noticeable change in this installment is applied to the setting. Unlike all other Phantasy Star games, it is initially set in a medieval fantasy environment devoid of the series' characteristic sci-fi elements. Gameplay-wise, this influences the usage of techniques, which are restricted to characters with a sci-fi civilization background who later join the party.

An unusual feature of the game is its generation system. The game's story spans three generations of characters, beginning with Rhys and ending with his grandchildren. Specific instances of the plot prompt the player to choose between two young women for Rhys to marry. Depending on this choice, the player will control different main characters during the second generation. Later, a similar choice is offered to both possible children of Rhys, splitting the subsequent story into four branches.