Ultima IV is a rarity among RPGs in that the game's story does not center on asking a player to overcome a tangible ultimate evil.

After the defeat of each of the members of the triad of evil in the previous three Ultima games, the world of Sosaria underwent some radical changes in geography: three quarters of the world disappeared, continents rose and sunk, new cities were built to replace the ones that were lost. Eventually the world, now unified in Lord British's rule, was renamed Britannia. Lord British felt the people were unhappy and was concerned with their spiritual well-being, so he proclaimed the Quest of the Avatar: He needed someone to step forth and become the shining example for others to follow.

The object of the game is to focus on the main character's development in virtuous life, and become a spiritual leader and an example to the people of the world of Britannia. The game follows the protagonist's struggle to understand and exercise the Eight Virtues. After proving his or her understanding in each of the virtues, locating several artifacts and finally descending into the dungeon called "The Stygian Abyss" to gain access to the Codex of Ultimate Wisdom, the protagonist becomes an Avatar. Though Avatarhood is not exclusive to one chosen person, the hero remains the only known Avatar throughout the later games, and as time passes he is increasingly regarded as a myth.