Mathayus and his partner Drazen (who is under the Akkadian's tutelage) infiltrate the palace of Skizzura to find and acquire an artifact known as the Urn of Kings for King Zakkour of Al-Moraad. In the process, they are discovered and a short fight ensues, revealing Drazen to be a traitor who was really after the Urn.
Mathayus returns to Zakkour, who tells him that the Urn's inscription will show the way to use the powers of Lord Alcaman, a powerful sorcerer who once controlled the entire known world. Under the instructions of the King, Mathayus follows Drazen to the kingdom of Norvania in the Northern Forests to deliver a peace treaty. Drazen gives the Urn to his father King Yannick who shatters it to retrieve the Golden Key of Lord Alcaman, which has the true inscription written on it.
Mathayus arrives in Norvania and is accosted by the king's guards. The soldiers are unable to best Mathayus, who allows himself to be arrested so he can enter the King's castle. In jail, Mathayus meets another inmate, Valina Raskov, who convinces Mathayus to pay her to meet the king. She explains that she is a member of the original royal bloodline and Drazen wishes to cement his father's rise to power with her public execution. Drazen appears with guards and takes Mathayus to be tortured, suspecting his peace treaty is a pretense. However, King Yannick believes Mathayus, releases him, and invites him to a dinner banquet. Drazen assassinates his father with black scorpions to cast blame on Mathayus and stall the treaty. Before dying, Yannick gives the Key to Mathayus, who resists capture and flees with Valina, who has feigned an illness to escape her cell, uses the ensuing chaos to leave the castle.
In the process, Mathayus suffers an arrow wound to the shoulder (as he did when fighting King Memnon), forcing the pair to go to Valina's father, Sorrell Raskov, an eccentric scholar and inventor who is unwilling to retake his place as ruler. Sorrell is shown the Key and explains how it will allegedly unlock Alcaman's palace, where a worthy man can take the Lord's crown and rule the world. Drazen arrives and forces them to give up the key, leaving them to die as he burns the house.
The heroes escape and follow Drazen to Glenrrossovia, a village in Sorrell's notes on the Key's code. Drazen begins terrorizing the villagers to find the palace. After enlisting a local boy to steal the key, they take it to the Temple of the Goddess, presided over by High Priestess Feminina. They discover the Key inserts into a symbolic hole in a Goddess statue, located in the Temple's underground sanctuary. The sanctuary is pushed through the earth, revealing stained glass that reveals the next direction of the journey.
After a fight in Gorak's lair with her opponent Chancara, Valina finds her dungeon friend Roland and has him join their party so they can find a map of the Tugarin Forest in which Alcaman's palace is hidden in a mountain and guarded by a dragon. They are trapped by Chief Onus who leads the native Tugarin pygmy tribe and attempts to sacrifice them to the spider-like "creatures of the forest." But Mathayus' bellow causes the creatures to retreat, and the tribe to embrace them. Despite warnings of the beast, the heroes proceed towards the mountain, where they find the dragon is really a mechanical contraption.
Finally, they arrive at Alcaman's palace and open the hidden door into the mountain. Roland proves to be a traitor in Drazen's service and the usurper's men surround and fill the throne room of Alcaman. Mathayus and Valina fight the attackers, but Sorrell receives a mortal wound from Drazen. Armed with Sorrell's notes, Mathayus proceeds deeper into Alcaman's palace, rigged with traps that kill those with Drazen and finds the Crown of Alcaman believing its power to be the only hope of healing Sorrell. Putting it on, he is covered in fire, but does not burn. As he prepares to return to his comrades, Drazen overpowers him and takes the Crown. Drazen is judged unworthy and the Crown freezes him to death. Mathayus shatters Drazen's frozen body and revives Sorrell, who finally believes in magic, with the Crown.
The group leaves the mountain and seals the door with the Key and Crown inside, telling the remainder of Drazen's men that the power of Lord Alcaman was just a myth. Sorrell is crowned King once more, but gives his crown to Valina, who promises to build a kingdom based on "science and mathematics, truth and reason, and just a little bit of magic".
During the credits, Mathayus is relieved from his service to King Zakkour who allowed him to stay with Queen Valina in her service. Valina and Mathayus share a kiss as Gorak and Chancara are also present at the dinner.