When starting up the game, a short movie is shown. Mickey falls asleep with a book of fairytales in his lap, later he wakes up in a strange village. A girl (looking like Daisy Duck) comes up to him asking him for help. She says 'the magic crystal' has been stolen from the villagers. Ever since then, the beautiful happiness in her village has been replaced with sadness. Mickey decides to help the villagers and goes after the evil phantom who has stolen the crystal.

The game's story has no direct connections to either its prequel, Castle of Illusion, or its sequel, World of Illusion.