The story takes place 12 years after Front Mission 1st.[8] Set in June 2102, the game's story of takes place in Alordesh (modern-day Bangladesh), a member state for the Oceania Cooperative Union (OCU).[9] The formation of the OCU in the early 21st century led to rapid industrialization of developing countries such as Bangladesh. During the 1st Huffman Conflict in 2070, Bangladesh's economic growth flourishes with the OCU because of many war factories in the country. However, the economic boom begins to slow down in 2080, with a loss of foreign investments and pullout of several businesses. Five years later, the OCU offers to provide Bangladesh with foreign aid, provided it joins the union. The Bangladeshi economy resurges briefly during the 2nd Huffman Conflict. Anti-OCU sentiments grew after the war and in 2094, Bangladesh renames itself as the "People's Republic of Alordesh". Four years later, the Alordeshi military staged a coup d'état. While the coup failed, it further increased anti-OCU support and led to a second coup in 2102.

The plot of Front Mission 2 revolves around three individuals from the OCU - Corporal Ash Faruk, Captain Thomas Norland, and intelligence officer Lisa Stanley. On June 12, 2102, the Alordeshi Armed Forces overthrows the pro-OCU government and subsequently declares independence from the OCU. Through a well-orchestrated plan, Alordeshi troops overwhelm the local OCU garrisons at their military bases in the country. In the midst of the chaos, Ash Faruk and members of the Muddy Otters unit attempt to flee the country. Along the way, they come across some OCU survivors led by Thomas Norland of the Dull Stags unit. Norland leads the survivors to the estate of Saribash Labra, the CEO of the transport business Burg Transportation. Saribash offers to help them escape by the seashore, the only part of Alordesh not controlled by the coup d'état forces. As the survivors head for the seashore, an OCU regiment lands in the country. Tasked with freeing POWs, Stanley leads a small unit to investigate the movements of the coup d'état forces.

Upon intercepting a transport helicopter, she learns of a detention center where OCU POWs are being held. Stanley succeeds in liberating the inmates and begins preparing for an operation to rescue Alordeshi government officials in Dhaka. A major battle breaks out in the city. The operation succeeds with some help from Norland and his subordinates, who opted to stay in the country and fight the coup forces. Meanwhile, aboard the OCU aircraft carrier Monto, Faruk is confronted by an officer from the OCU's Central Intelligence Unit. He reluctantly agrees to return to the country when the officer, Pike Reischauer, reveals that some of his colleagues in the Muddy Otters are still alive. Upon returning to Alordesh, they are pursued by coup leader Ven Mackarge. A link between Mackarge's pursuit of them, the OCU's liberation attempts, and Burg Transportation's involvement in the war is eventually formed when it is revealed that the coup forces are receiving support from an unknown third party, and are in possession of a device codenamed "FENRIR".