The game is set in Angel Land, which is a fantasy world with a Greek mythology theme. The backstory of Kid Icarus is described in the instruction booklet: before the events of the game, Earth was ruled by Palutena: Goddess of Light and Medusa: Goddess of Darkness. Palutena bestowed the people with light to make them happy. Medusa hated the humans, dried up their crop, and turned them to stone. Enraged by this, Palutena transformed Medusa into a monster and banished her to the Underworld. Out of revenge, Medusa conspired with the monsters of the Underworld to take over Palutena's residence the Palace in the Sky. She launched a surprise attack, and stole the three sacred treasures — the Mirror Shield, the Light Arrows and the Wings of Pegasus — which deprived Palutena's army of its power. After her soldiers had been turned to stone by Medusa, Palutena was defeated in battle and imprisoned deep inside the Palace in the Sky.

With her last power, she sent a bow and arrow to the young angel Pit. He escapes from his prison in the Underworld and sets out to save Palutena and Angel Land. Throughout the course of the story, Pit retrieves the three sacred treasures from the fortress gatekeepers at their respective fortresses in the Underworld, the Overworld, and the Skyworld. Afterward, he equips himself with the treasures and storms the sky temple where he defeats Medusa and rescues Palutena. The game has five different endings; depending on the player's performance, Palutena may present Pit with headgear or transform him into a full-grown angel.