Fallout is set in the timeline which deviated from our own some time after World War II, and where technology, politics and culture followed a different course. In the 21st century, a worldwide conflict is brought on by global petroleum shortage. Several nations begin warring with one another for the last of non-renewable resources, namely oil and uranium; known as the Resource Wars, fighting begins in April 2052 and ends in 2077. China invades Alaska in the winter of 2066, causing the United States to go to war with China and using Canadian resources to supply their war efforts, despite Canadian complaints. Eventually the United States violently annexes Canada in February 2076 and reclaims Alaska nearly a year later. After years of conflict, on October 23, 2077, a global nuclear war occurs. It is not known who strikes first, but in less than a few hours most major cities are destroyed. The effects of the war do not fade for the next hundred years and as a consequence, human society has collapsed leaving only survivor settlements barely able to make out a living in the barren wasteland, while a few live through the occurrence in underground fallout shelters known as Vaults. One of these, Vault 13, is the protagonist's home, where the game begins.

In Vault 13, in 2161 in Southern California, 84 years after the nuclear war. The Water Chip, a computer chip responsible for the water recycling and pumping machinery, breaks. The Vault Overseer tasks the protagonist, the Vault Dweller, with finding a replacement. He or she is given a portable device called the "Pip-Boy 2000" that keeps track of map-making, objectives, and bookkeeping. Armed with the Pip-Boy 2000 and meager equipment, including a small sum of bottle caps which are used as currency in the post-apocalyptic world, the main character is sent off on the quest.