Princess Scarlet is the daughter of the Immortal Yana from the Heavenly Realm, and a man named Chao who was destined to become the Emperor of the Song Dynasty. Since time immemorial the Chi forces of Yin and Yang which comprise all of existence have been in an uneasy balance, with the Immortal Yang Chi rising to create the Heavenly realm, and the turbid Yin Chi sinking to create the Demon Realm. The human realm is between them, with the balance of Chi between the two keeping its very fabric stable enough to exist. The Immortals of the Heavenly Realm agreed to a voluntary ban from descending to the world below in order to prevent their Immortal Chi from tipping the balance and threatening to destroy the human world. At this time the Goddess Yana was the Keeper of a holy relic known as the Celestial Mirror which had the power to show anything.

When Yana one day glimpsed the human realm through it she could not help descending to the world and satisfying her curiosity. Disguising herself as a mortal woman to avoid being found and returned by the other Immortals, she eventually met the mortal man Chao and fell helplessly in love. Moving to the remote Spring Village in the hopes of remaining hidden, Yana eventually gave birth to their daughter. In time the other Immortals were able to sense the growing imbalance of the human world brought about by the Immortal Chi surrounding Yana(Scarlet Legacy Gold), and were able to locate her and return her to their proper Realm. Yana left the Celestial Mirror in Scarlet's possession to remain linked to her family, however its power was greatly muted with her departure. Thinking Yana lost to him, Chao decides to return to the royal court with their daughter.

When players begin their journey in Scarlet Legacy, their characters have grown up as childhood friends with the Princess in Spring Village before Scarlet and her father decide to leave the village. As they go, forces of the Demon Realm attack the caravan, and capture Scarlet in an attempt to gain the power of the Celestial Mirror to assist their coming invasion of the human world. Too young to help protect the Princess, the player is entrusted by Scarlet to keep the Mirror safe before she is taken hostage. The game's storyline unfolds through the visions of the Celestial Mirror as the player begins their quest to rescue her(Scarlet Legacy Online Gold).