Long ago, Spirits known as Lokomos escaped their realm to end a war with the Demon King Malladus by sealing him away below the Tower of Spirits with the "Spirit Tracks", a network of chains that runs across the region. Following the events of The Wind Waker and Phantom Hourglass, the previous incarnations of Link and Zelda settled the land, christening it as "New Hyrule" after their old homeland. The inhabitants of New Hyrule develop steam trains that can travel on the Spirit Tracks.

A century later, a new incarnation of Link successfully graduates as a train engineer. At his graduation ceremony in Hyrule Castle, he meets Princess Zelda and her chancellor Cole. Zelda befriends Link and asks for his aid in escaping Hyrule Castle to investigate the vanishing Spirit Tracks. As they arrive at the Temple of Spirits, the source of the Spirit Tracks' power, it is revealed that Cole is a demon serving Malladus. With his accomplice Byrne, Cole disembodies Zelda's spirit from her body. As only a host with sacred blood can sustain Malladus, Cole plans to allow Malladus to possess Zelda's body. Spirit-Zelda flees to the Tower of Spirits, which fragments as the disappearing rails loosen Malladus' bonds. Link attempts to attack Cole, but is knocked unconscious by Byrne.

Link awakens in the Tower of Spirits, where he and the disembodied Zelda meet the lokomo Anjean, who instructs the two to restore the Tower of Spirits and the Spirit Tracks. Link is almost killed by a Phantom, a guardian of the tower, but Zelda saves him by possessing the Phantom. Together, Link and Zelda discover glyphs that restore the Spirit Tracks, facilitating travel to the regions of Hyrule. Anjean entrusts Link and Zelda with the Spirit Train, which they use to travel throughout Hyrule, and the Spirit Flute, a magical pan flute that Link uses to duet with Lokomos across Hyrule to restore more Spirit Tracks. Together, Link and Zelda defeat servants of Malladus that have corrupted temples in New Hyrule and successfully repair the Tower of Spirits.

On their return, Link and Zelda are ambushed by Byrne, revealed to be a Rogue Lokomo. Anjean battles him and teleports Link and Zelda away. Despite the Tower being repaired, Malladus is resurrected into Zelda's body and betrays Byrne before fleeing into the Dark Realm. Anjean instructs the group to find the Bow and Compass of Light. Link does so, and Anjean gives him the "Lokomo Sword", which can kill Malladus. Link and Zelda enter the Dark Realm, and remove Malladus from Zelda's body. A reformed Byrne sacrifices himself in the process, and Malladus possesses Cole to destroy the world. Calling on the power of the Lokomos via the Spirit Flute, Link and Zelda use the Lokomo Sword and the Bow of Light in tandem to defeat Malladus, allowing Anjean and the Lokomos return to the Spirits' Realm.

A post-credits scene shows Zelda writing in her room; depending on a dialogue choice, Link either becomes a royal guard she watches training, returns as an engineer to whom Zelda waves from her window, or vanishes on an unknown path.