Minecraft Dungeons is set in the same fictional world as Minecraft, known as the "Overworld", consisting of rough 3D objects—mainly cubes and fluids, and commonly called "blocks"—representing various materials, and inhabited by both peaceful and hostile mobs. Unlike 'Minecraft', the game features a linear, story-driven campaign, and cutscenes.

The opening cutscene tells the story of an illager named Archie, who was driven away by his people. While searching for a new home, he was forced to leave every village he found due to Villagers not allowing him to live with them. One day, Archie stumbled upon a powerful artifact known as the Orb of Dominance, which granted him magic powers but also corrupted him. Now known as the "Arch-Illager", he sought vengeance on all those who wronged him and subjugated numerous villages with his newly acquired army, composed of creatures such as redstone golems and other Illagers. Players assume the role of heroes who embark on a quest to defeat the Arch-Illager while liberating oppressed villages, fighting monsters, and completing various quests. Ultimately, the players face the Arch-Illager in his castle and, once defeated, the orb takes its true form as the Heart of Ender boss. This is the final boss of the game. After destroying the Heart of Ender aka the Orb of Dominance, Archie is freed from its influence. Rather than punish Archie for his actions, the players show him kindness and forgiveness and quickly befriend him. As the players and Archie depart, the Orb is shown to be rebuilding itself. It is then found by an Enderman who picks up the orb and goes into the End. The last scene in the cutscene shows an Endersent climbing out of the portal. In the game, after defeating Archie, players unlock new difficulties that make the game more challenging but provide better rewards.