The game uses cutscenes to present the background of Sly Cooper, a raccoon descendant from a long line of master thieves who steal from other thieves. However, that lineage became crippled when a gang known as the Fiendish Five — led by Clockwerk, a cyborg-like owl with a hatred for the Cooper line — killed Sly's father, Conner Cooper, while Sly was eight years old. The gang also got their hands on the Thievius Raccoonus, a book recording the journeys and skills of every Cooper ancestor. The book was split into five pieces among the Fiendish Five and dispersed within their lairs. Broke and alone, Sly was then taken to the Happy Camper Orphanage, where he became close friends with the intelligent Bentley and the happy-go-lucky Murray. The three eventually left the orphanage and formed the Cooper Gang, pulling off amazing heists and robberies. Their activities attracted the attention of INTERPOL Inspector Carmelita Fox, who made it her mission to capture Sly, and he took a subtle, romantic interest in her.

Once Sly managed to steal a police file from Inspector Fox's office, he and his gang learned the location of each Fiendish Five member and then plotted together to retrieve the stolen book. The raccoon took down each villain in their respective lairs, recovering a majority of the pages from the book and reassembling it piece by piece until finally, he discovered the location of Clockwerk's lair, all the while being furiously chased by Carmelita. After an assault on Clockwerk's fortress with help from Bentley, Murray and even Carmelita, Sly was able to defeat Clockwerk and fully reassemble the Thievius Raccoonus. Carmelita, keeping her word on an earlier promise, gave Sly a ten-second head start. However, once those ten seconds were up, Sly suddenly kissed her, which was enough of a distraction for him to handcuff her to the catwalk on which they stood, allowing him and his gang to make their escape.

After the credits, a severely wounded and seemingly dead Clockwerk, opened one of his eyes, showing that despite his defeat, he was still somewhat alive, setting up the premise for the next game.