500 years ago, the annual Shaolin Tournament, the most prestigious fighting tournament in the world, was interrupted by the appearance of an old sorcerer and a strange four-armed creature, who entered the tournament and defeated the Great Kung Lao. This Shokan warrior was the half-human, half-dragon fighter named Goro, who became the ultimate fighting champion for the next five hundred years. This was all part of Shang Tsung's plan to tip the balance into chaos and help Outworld conquer the Earth Realm.

Liu Kang would go to the tournament with the intent to restore balance. A martial artist/movie star, Johnny Cage, also entered the tournament and befriended Liu when a fight broke out between himself and Kano. Lin Kuei warrior Sub-Zero was invited to join the tournament by Shang Tsung himself, two years earlier after his ordeal with Shinnok's Amulet. (According to his MK Ending, his reason for joining the tournament was to assassinate Shang Tsung, by the request of a wealthy enemy of Tsung's. This story thread is continued with the younger Sub-Zero brother in MKII). The undead Shirai Ryu ninja Scorpion entered the tournament intending to kill Sub-Zero, believing Sub-Zero to be responsible for killing him (in Mythologies, it was also stated that Scorpion thought that Sub-Zero had murdered his family and clan as well). Raiden, the God of Thunder, was also asked personally by Shang Tsung himself, and Raiden himself boasted that "all those who would oppose Raiden would be crushed." He took the form of a human in order to participate in the tournament.

Kano, the Black Dragon's most diabolical thug, was being chased by a U.S. Special Forces Unit, led by Lt. Sonya Blade, when he managed to get onto the boat heading for the tournament; his goal in the tournament was to loot Shang Tsung's Palace (where the walls are rumored to be made of gold). Once Sonya and her men arrived, Shang Tsung's personal army ambushed them. The Special Forces Unit was captured in the surprise attack, so Sonya had no choice but to take part in the tournament in order to save them. Thus the tournament was set.