MechWarrior 2: 31st Century Combat is set in 3057, shortly after the Battle of Tukayyid between the Inner Sphere and invading clan armies. The plot revolves around an ideological conflict inside the clans.[6] It focuses on the clans Jade Falcon and Wolf, which represent either Crusaders and Wardens, respectively. The Clans are the descendants of the Star League Defense Force, most of which was led by their commander Aleksandr Kerensky into the unknown regions of space in an attempt to prevent the warring nations of the Inner Sphere from obliterating each other. These forces eventually splintered and formed 20 groups called Clans, creating a society based around warfare and creating warriors for their advanced BattleMechs. During the years of isolation, two ideologies divided the clans; Crusader clans wished to return to the Inner Sphere as conquerors, forcing the nations to unite and recreate the Star League. The Warden clans believed the clans should act as protectors of the Inner Sphere, only intervening if a threat of sufficient magnitude was encountered.

Eventually, the Crusader faction won and the Clans returned to the Inner Sphere as an invasion force containing a small fraction of the clans including the Jade Falcons, Clan Wolf, Smoke Jaguars and the Ghost Bears. The invasion force consisted of Crusader and Warden clans, chiefly Clan Wolf. The Wardens participated in an attempt to mitigate the damage caused by the Crusader clans. The invasion continued until the invading clans were challenged by the ComStar organization to a fight on the planet Tukayyid. If the Clans won, they would gain control of Terra, which was controlled by ComStar; if they lost they would halt the invasion for 15 years under a truce. The Clans lost the battle and their invasion was halted for 15 years. In the wake of the defeat, Ulric Kerensky, the leader of the invasion and warlord of the Clans, as well as a staunch Warden and member of the Warden-leaning Clan Wolf, was charged with treason and accused of purposely losing by the Crusader elements of his Clan. They claimed because Ulric was a Warden, he engineered the defeat to sabotage the invasion, and also accused him of genocide.

The basis Clan law was "might equals right" so matters could be settled by combat. Ulric challenged the Crusaders to uphold his status within the Clan Council and, as a result, maintain the Truce of Tukayyid. The Jade Falcon clan, the strongest of the Crusader Clans and historic enemy of Wolf Clan, took up the challenge. In the conflict, which became known as the Refusal War, the Jade Falcons fight to uphold the Council's judgment of guilt, allowing an immediate resumption of the Invasion against the still-weakened Inner Sphere. Ulric and the Wolves, however, are determined to fight a war of extermination against the Falcons and weaken them so they cannot threaten the Inner Sphere.