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Sonic arrives at Never Lake where the fabled Little Planet (also known as Miracle Planet) is said to appear on the last month of every year. Sonic arrives to find the planet tethered to a mountain by a chain and completely mechanized. Sonic realizes this is the work of his arch-nemesis, Dr. Robotnik, who is using the planet's unique time-traveling properties to make it his own base. Furthermore, Robotnik has created a robotic counterpart of Sonic named Metal Sonic, who kidnaps a young female hedgehog called Amy Rosewhen she follows Sonic to the mystical planet. Sonic must venture to Little Planet and collect the Time Stones, seven jewels capable of altering the passage of time itself, in order to save Amy, destroy Metal Sonic, and liberate Little Planet from Robotnik's tyrannical control.

Robotnik and Metal Sonic are defeated, and Little Planet is freed. The events of the game eventually set the scene for Sonic the Hedgehog 4.