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A great swordsman named Stahn Aileron takes a ride on a giant dragon ship. During the flight, the ship is attacked by pirates. Looking for a weapon to defend himself, Stahn discovers a sword. Very soon he finds out it is not just an ordinary sword, but the legendary talking sword Dymlos, who has been sleeping for many years and who can be awakened only if the world is in grave danger. But what exactly is the danger that awakened Dymlos now? With the help of a few friends, Stahn decides to explore the world and find out what is wrong.

Tales of Destiny is a follow-up to Tales of Phantasia. Like its predecessor, it has the structure of traditional Japanese role-playing games, but substitutes turn-based combat for action-oriented one. Battles take place on separate side-scrolling screens and resemble those of a fighting game. The player controls the main hero, navigating him on the battle screen and performing various attacks and combos. Other party members are controlled by the game's AI, but it is possible to pause the battle at any time and assign new combat style to any one of them.