Mystery of the Emblem is set on the continent of Archanea, and is split into two halves dubbed "Books". "Book 1" is a retelling of the events of Shadow Dragon and the Blade of Light: Marth, the prince of Altea, is forced into exile when his homeland is attacked by the neighboring kingdom of Gra. With his father killed and his sister Elice captive, Marth must muster a force to defeat the will driving the invasion: the dark dragon Medeus and his subordinate Gharnef. Marth's allies include the princess and Pegasus knight Caeda, Marth's mentor Jagen, kindly Princess Nyna of Archanea's Royal Family, and the Archsage Gotoh. His quest leads him to recovering Falchion, a magical sword which can defeat Medeus and which only Marth can wield due to his ancient heritage as a descendant of Anri, the warrior who defeated Medeus. Having recovered both Falchion and the magical Fire Emblem shield, Marth confronts Gharnef and Medeus, the latter of whom is leader of the last surviving tribe of Manakete, an ancient tribe which could shapeshift into dragons. In the end, Marth defeats Medeus and restores peace, surrendering the Fire Emblem to Archanea for safekeeping.

"Book 2" takes place two years after Book 1. Marth's ally Hardin, now the new Emperor of Archanea, begins the forceful military occupation of neighboring countries, with Marth's army being used as part of the conquests. When Marth grows suspicious of his role in Hardin's plans, he is branded as a traitor to Archanea and is relentlessly hunted down by Hardin's forces. Receiving the Fire Emblem from Nyna by way of a courier, Marth and his army escapes to the desert of Khadein and meets with Gotoh. He explains that Hardin has become possessed by the evil power of the Darksphere, which Gharnef secretly gave to him, and that only the Lightsphere can counter its power and save Hardin. Marth also locates other magical spheres in his quest: the Lifesphere, the Geosphere, and the Starsphere (the latter of which must be reassembled through the collection of Starshards). Marth and his allies journey through the icy mountains to obtain the Lightsphere, then stage a final assault on Archanea to liberate the continent from Hardin's madness. Though the Lightsphere nullifies the Darksphere's power, Hardin is critically wounded in his battle and can only apologize to Marth for his actions before he dies. With the last sphere, Marth inserts all five into the Fire Emblem and unlocks its full power as the Shield of Seals.

Gotoh then arrives to inform Marth that Gharnef has kidnapped several female clerics, including Princess Nyna and his own sister Elice, to serve as sacrifices for the revival of Medeus. Marth leads his army to an ancient temple where Gharnef holds the ceremony. After killing Gharnef, retrieving Falchion, and rescuing the clerics, Marth confronts Medeus, who has taken the form of an enormous dark dragon. Using the Falchion and Shield of Seals, Marth slays Medeus. With peace restored to the land, Marth and Caeda, now married, become the rulers of all Archanea.

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