Avalice is an earth-like planet that is home to a variety of anthropomorphic animals, and Dragons who came from an unknown planet in outer space. The Planet's cultures, mythologies and landscapes are similar to those of East Asia.
Avalice used to be a standard planet filled with all kinds of life and vegetation, until the spacecraft of the Ancient Dragons crash landed on the planet. They wasted countless years trying to find a way to take back to the stars, but to no avail. Ultimately, the Dragons decided to help the Avalicians survive and prosper by asstisting them with their technology, condensing the last of their energy reserve into the Kingdom Stone for the planet to use. With that, the Dragons settled in the location now known as Pangu Lagoon, with their influence eventually passing into legend, as requested by the Avalicians of that era. Since then, Three Kingdoms were situated on Avalice, each with their own power and technology: Shang Tu, Shang Mu & Shuigang.
During the events of Freedom Planet, Avalice is invaded by an alien army, led by Arktivus Brevon, an Intergalactic Warlord who plotted to turn the Three Kingdoms against each other, in an attempt to steal the Kingdom Stone, so he could power his Dreadnought to continue his galactic conquest, leaving the planet on the brink of civil war. Thanks to the efforts of Team Lilac, Brevon and his army were defeated, but the Kingdom Stone was destroyed along with the Dreadnought, and Brevon himself manages to escape the Planet. All hope seemed lost for the Avalicians, believing they won't be able to survive without any more energy. But then the unthinkable happened: the Kingdom Stone had transformed into a Crystalline Vortex, which began to spread unlimited energy across the planet, marking a new beginning for the World of Avalice. Eventually, the Vortex transformed into a planetary ring that wrapped around the planet.
In the two years after the events of the first game, Avalice has seen and gone through much change, thanks to the new form of the Kingdom Stone. The people of Shang Tu praise General Gong as a hero, believing he is the one who defeated Lord Brevon. The people of Shang Mu not only rejoice with the city's Battlesphere, but feel safer under protection of the Beaked Marauder, Captain Kalaw. The people of Shuigang continue to pick up the pieces as their ruler, King Dail, was used as a pawn of war following his Father's death. Despite the peace on Avalice, the remnants of Brevon's Army continues to strike back at the Three Kingdoms in his absence, and the destruction of the Kingdom Stone's physical form has resulted in the awakening of an ancient evil from the distant past.
Over 100 years ago, during Avalice's oldest and deadliest war, a Water Dragon named Merga was bioengineered to be a perfect warrior, making her ruthless and power-hungry as she fought in said war. As a result of her warmongering, she was sealed in a crystal prison locked by the Kingdom Stone's power, and hidden deep in the ocean off the coast of the island chain, Parusa. Now freed from her imprisonment, Merga seeks vengeance upon the Avalicians as she out to resurrect the ancient superweapon, Bakunawa, as part of her goal to"Purify the World". She also plans to expose dark secrets about the Leaders of Avalice that will not only change the History of the Three Kingdoms forever, but will also push the friendship between Lilac, Carol & Milla to the breaking point.