In the past, the ancients used powerful Mind Magic to conjure and create anything they could think of. However, one of the Ancients, known as Brain, tried to use Mind Magic to brainwash all of Skylands, so the ancients sealed him away, and sealed away the power of Mind Magic so evil could not use it.
Following the events of the last game, there has been an era of peace. However, a mysterious being soon steals a book from the Skylanders Academy, and is soon revealed to work for Kaos, who seeks to use the power of Mind Magic to create an army of Doomlanders to conquer Skylands. However, his constructs prove feeble and erratic, leading him to seek the aid of Brain, the last remaining Ancient. With this, he becomes more capable, but still remains unable to defeat the player, so they instead decide to brainwash all of Skylands and protect their fortress with an impenetrable force field, leaving only Spyro immune because of his dragon body. They are able to free the Skylands from the brainwash, and trick Kaos into letting them in. In the final battle, Kaos powers into a more powerful form summoning various Doomlanders to aid him but Brain, frustrated at Kaos' low intelligence and insults, betrays him and fights alongside the player. When Kaos is defeated, Brain tries to run, but works alongside the Skylanders under the threat of being sealed away, and shrinks Kaos and Glumshanks, with the game ending before he starts to tell a tale.