At the beginning of the story, much of the world has been destroyed by the Festum and the remote Japanese island of Tatsumiyajima (竜宮島^?, lit. Dragon Palace Island) has only remained unscathed by virtue of an advanced cloaking shield. The island's young people continue with their daily lives unaware of these events, but after many years of peace a lone Festum discovers Tatsumiyajima and attacks. The adults activate Tatsumiyajima's hidden defense systems and attempt to repel the attacker but to no avail. Many of them are killed by the Festum in a process of assimilation. In desperation, they order the deployment of a Mecha called the Fafner Mark Elf, but its pilot is killed en route to the hangar. Left with no further options, they send a young boy named Kazuki Makabe as the replacement pilot assisted by Soushi Minashiro from within the Siegfried System.

The Festum is destroyed, but with Tasumiyajima's whereabouts exposed, the adults choose to relocate the island. Production is accelerated on additional Fafner units and more children are recruited to pilot them. It is also revealed that the cloaking was not meant to conceal Tatsumiyajima from only the Festum, but from the rest of humanity who would seek to use its technology in the greater war against them.