Dragon Quest III is set many years before the original Dragon Quest in a world bearing great similarity to the real world. A wicked fiend, Baramos, threatens to destroy the world. The hero, son or daughter (you can choose to be either male or female) of the legendary Ortega, recruits up to three travelling companions and sets out to defeat Baramos, only to find later that Baramos is merely a disciple of Zoma, the fiend who rules the Dark World below. The hero then travels to the Dark World, which is known as Alefgard in subsequent installments of the series, and restores light. For his bravery, the hero receives the title of Loto (Erdrick in the NES version).

The flow of the game is as follows. The hero travels from his home country of Aliahan to explore the world and acquire three keys needed to open doors throughout the game. After saving a couple of the town of Baharata from the rogue Robbin' 'ood, the hero receives Black Pepper, which he trades for a sailing ship at Portoga. With the ship, the hero acquires the Final Key and the six mystical orbs which are used to revive the legendary bird Lamia. Lamia takes the hero to Baramos' castle. After a ferocious battle, the hero's celebration is cut off as Zoma attacks and opens the pit to the dark world. In the dark world, the hero acquires the Stones of Sunlight, the Staff of Rain, and the Seal of Rubiss. These items are then exchanged for the Rainbow Drop. This item creates a bridge, which leads the hero to Zoma's castle for the final confrontation.