.hack//G.U. takes place in an alternate version of Earth in the year 2017. As depicted in the first .hack game series, the "2nd Network Crisis" was an incident that occurred seven years ago in which many computer systems across Japan malfunctioned. Through the efforts of those games' hero, Kite, the incident resulted in the birth of Aura, the ultimate artificial intelligence (AI), capable of making decisions for itself. Under the guidance of Aura, The World, the most popular massively multiplayer online role-playing game at the time, flourishes and the events of .hack//Legend of the Twilight occur during this four-year period.

In late 2014, Aura disappears, resulting in the slow decay of The World and the Internet as a whole. In response, the company that administrates The World, CC Corp, sets up "Project G.U." and tasks them with remedying the problem. They come up with the "Restore Aura (RA) Plan", in which they attempt to retrieve the fragments of Morganna—an AI that served as Aura's "mother"—and seal them into player characters (PCs) of The World. In theory, this would allow the Project G.U. programmers to manipulate the Morganna program to recreate Aura. Only certain "chosen" players could control these special "Epitaph PCs".

After locating candidates to operate the Epitaph PCs, the team proceeds to test the RA Plan despite concerns over "anti-existences" that might damage the Internet. The program fails catastrophically and destroys over 80% of the data for The World.[9] Instead of trying to salvage the data, CC Corp develops The World R:2 and releases it to a new generation of players. However, this new game is less popular than its predecessor and becomes plagued by "player killers" (PKs), players who target other players for fun and sport. The Epitaph PCs which had been lost during the RA Plan disaster resurface in the new version, attached to certain players of interest.

Vol 1: Rebirth: The story starts with Haseo who, eight months after starting playing in The World, has become a powerful player killer killer or PKK and searches for Tri-Edge, responsible for killing his friend Shino's character and leaving the player behind her in a coma. Tri-Edge uses an illegal skill on Haseo, which resets his character data to level one. Lacking the strength he once had, Haseo is mistaken for a newbie player by Silabus and Gaspard, who invite him to join their guild, Canard, eventually becoming its Guild Master. During this, he is approached by Kuhn and Pi, two players associated with G.U., a group run by Yata who works for CC Corp, and is investigating AIDA, a bizarre computer anomaly that is appearing in the game. Yata requests Haseo's help as he is an Epitaph User, and is one of the eight players who can use an Avatar, the only vehicle to combat AIDA. Haseo agrees on the condition that Yata find Tri-Edge for him, which Yata agrees with.

During this time he is repeatedly contacted by Atoli, a gentle healer that tries to convince Haseo to enjoy the game and its world more, though Haseo is annoyed by her resemblance to Shino. Haseo also watches an arena match between Endrance, Arena Emperor, and a challenger, and is startled to see Endrance, a player he saw with AIDA, use an Avatar. Determined to learn more, he joins the arena and eventually defeats Endrance. After winning, Atoli, on advice from Ovan, finds a Tri-Edge sign, a red carving, and transports to a region outside the normal game parameters, determined to get Haseo to see her as valuable. Realizing she is in great danger, Haseo, Pi, and Kuhn locate her struggling to open a locker. After distracting her, Tri-Edge appears, and is defeated by Haseo. After doing so, an AIDA attacks Atoli's character.