The game begins in medias res with Asgard being invaded by the Jötun (frost giants from Jotunheim). Thor, meanwhile, is training with Sif and his brother Loki. Their training is interrupted, however, by the arrival of the Frost Giants. While Loki leaves to inform Odin about the invasion, Thor is left to fight alone after Sif is frozen by one of the arriving jötun. After quickly fending his enemies off and setting Sif free, Thor goes to Odin's castle to defend Asgard. The invasion is stopped, but Sif is fatally wounded in the process. After Thor is denied retribution for the invasion, and Sif's condition, by Odin, Thor disobeys his father's orders and travels to Niflheim aided by one of Loki's projected clones (who is revealed to be the mastermind behind the invasion). While Thor travels to Nilfheim, it is shown that Odin manages to save Sif from the dead and then he proceeds to enter the Odinsleep. As Thor arrives to Nilfheim Loki tells him to find Ymir, Lord of the Jötun and Ruler of Niflheim. Thor finds and, after a long battle, defeats Ymir inside the Cave of Ages. There, Thor finds the source of a power that, as Loki says, can destroy the entire realm of Niflheim. Ignoring Ymir's warnings, Thor activates the source which transforms into a golden, metallic, minotaur-like creature known as Mangog that instantly vaporizes Ymir. Loki then sends an unaware (and guilt-ridden) Thor to Vanaheim rather than Asgard, as Thor wanted. Loki (who wants to prove himself to Odin as a rightful heir to Asgard's throne) had previously struck a deal with Ulik (Lord of the Vanir-trolls-and ruler of Vanaheim) for him to "delay" Thor's return to Asgard, whilst Loki stops Mangog. In exchange, Loki promised to repair Vanaheim's Frostgrinder (the Vanir's faulty replica of the Bifrost) and allow Ulik to leave Vanaheim.
While Thor makes his way through Vanaheim, back in Asgard, Mangog wreaks havoc throughout the city. Loki tries to stop Mangog, using the Casket of Eternal Winter from Niflheim. His plan backfires, as Mangog easily breaks free from the ice due to the fire that it emits. Mangog summons an army of Jötun and Infernir, forcing Loki to change his plans and ask Ulik to allow Thor to use the Frostgrinder but Ulik (having waited to leave Vanaheim for decades) betrays Loki. Thor, meanwhile, reaches the doors of the Frostgrinder. There, he discovers, through a historical record of Vanaheim, that it was Odin who originally created Mangog after the Vanir had declared war against Asgard. The Vanir were unable to control and defeat Mangog, but they found out that Mangog's only weakness is a god-created mineral called Scabrite (which was used by Odin to forge the chains used to restrain Mangog) Thor eventually confronts and defeats Ulik. As Loki tells Thor about the state of Asgard, Thor reveals Mangog's only possible weakness to Loki. Loki informs Thor that Scabrite can only be found in one realm: Muspelheim, home of the Infernir.
Thor then travels to Muspelheim, where he faces Surtur, Lord of the Infernir and ruler of Muspelheim. Thor manages to defeat Surtur, and claims the Twilight Sword. Thor then destroys the Twilight, which releases its Scabrite-filled energy which in turn is absorbed by Mjolnir.
Thor then returns to Asgard, where Loki tells him that before he faces Mangog he has to help Heimdall and a fully recovered Sif retake the Bifrost's observatory. After Thor successfully helps Heimdall and Sif, he goes to face Mangog in combat, aided by Loki and a weakened Odin. After a long fight, Thor defeats Mangog. He then apologizes to Odin for releasing Mangog out of anger and pride, but Odin says it is he himself who should apologize as it was he himself who created Mangog in the first place. Odin then releases the souls of the Vanir trapped within Mangog (which also gave Mangog power) to their fate in afterlife as the game ends.