At the end of the original Fallout, the hero, the Vault Dweller, was exiled by the Vault 13 overseer for prolonged exposure to the outside world. Unable to return home, the Vault Dweller, with a group of willing companions, traveled north. Eventually, they started their own tribal village called Arroyo in northern New California. Decades have passed since the original Fallout, and the Vault Dweller disappeared from Arroyo after writing their memoirs.

In the time since the Vault Dweller's exile, a new government known as the New California Republic (abbreviated as NCR) has begun to unify the southern towns and is spreading to the north. A mysterious new organization known as the Enclave has emerged with the most sophisticated technology in the wastes, even surpassing the Brotherhood of Steel. A new drug, Jet, has become a burden on many towns, its addictive properties forcing many to rely on the town of New Reno to keep them supplied.

During 2241, the humble village of Arroyo suffered the worst drought on record. Faced with this hardship, the village elder asked the direct descendant of the Vault Dweller, referred to as the Chosen One, to perform the quest of retrieving a Garden of Eden Creation Kit (G.E.C.K) for Arroyo. The GECK is a device that can create thriving communities out of the post-apocalyptic wasteland. The player, assuming the role of the Chosen One, is given nothing more than the Vault Dweller's jumpsuit, a RobCo Pip-Boy 2000 handheld device, a Vault 13 water flask, and some cash to start this quest on July 25, 2241.

The player eventually finds Vault 13 (the first place possible to obtain a GECK) devoid of the majority of its former human inhabitants. The Chosen One returns to find their village captured by the Enclave, a mysterious group that is later revealed to be the remnants of the pre-War United States government. The Chosen One can activate an oil tanker and its autopilot, thus allowing them to reach the Enclave's main base on an offshore oil rig.

It is revealed that the dwellers of Vault 13 were captured as well, to be used as test subjects for FEV (Forced Evolutionary Virus), alongside Arroyo tribesmen and women. Vault 13 was supposed to be closed for 200 years as part of a Vault-Tec vault experiment; this makes them perfect test subjects. The Enclave modified the Forced Evolutionary Virus into an airborne disease, designed to attack any living creatures with mutated DNA. With all genetic impurities removed, the Enclave (who remains protected from radiation) could take over. The Chosen One frees both their village (Arroyo) and the Vault 13 dwellers from Enclave control and destroys the Enclave's oil rig.