Bahamut Lagoon takes place in a world called Orelus. It is made up of floating islands called Lagoons and home to Dragons. The major lagoons are watched over by a Holy Dragon, Bahamut is the Dragon who watches over the Kingdom of Kahna. However, when Kahna is conquered by the Granbelos Empire, Bahamut does not defend it, and as a result its princess is captured and sadness fills the skies of Orelus. The lead protagonist, Byuu, and his Dragon Squad set up a resistance. Their goal is to free the kidnapped princess of Kahna and remove the sadness from the skies. After recovering their missing Dragons, they set out to take back the flagship of Kahna, which they name Fahrnheit.