The events of the game take place eighteen months after those described in Ultima VII: The Black Gate. Batlin, the leader of the Fellowship has disappeared, as well as Iolo's wife Gwenno. A map is found that points to the Serpent Isle where the Guardian is still planning to destroy Britannia. Lord British sends the Avatar and his companions to this new land. Once there, the Avatar discovers that a great imbalance is upon the isle and it is up to him to fix it. To do so, he must learn the philosophies of the original inhabitants of this land, who worshipped giant serpents symbolizing the principles of Order, Chaos and Balance.
Serpent Isle uses virtually the same game engine as the first Ultima VII, with some slight modifications in inventory management and NPC portraits (which are now digitized images of actors). The story, however, is more linear and also more extensive. Unlike earlier Ultima games, many tasks have to be accomplished before the player is able to advance to a different area. There are also many scripted events that advance the plot, though the free-roaming is still retained to a large degree, with a vast amount of locations to visit, items to collect, and NPCs to interact with. Combat is handled similarly to the previous game, with a simple real-time point-and-click management of the Avatar's actions, while his/her party members are being controlled by the AI.