In the middle of the night, they are awakened by a guard, who escorts them to Castle Fairfax on Lord Lucien's order. Overjoyed that their wish came true, the two follow eagerly. After meeting Lord Lucien and telling him of the box, he asks them to step in a circle on the floor. A blue light emits from the edge of the circle, and to Lucien's anger turns red upon his touch. Proclaiming that they are not any of the three, and one of them is the fourth, he shoots Rose, and afterward shoots Sparrow, who falls out of the window. Upon waking up, Sparrow learns that they have survived the fall due to their heroic line, and Theresa and the dog recue them.
Ten years later, Lucien has been rebuilding the Tattered Spire, which grants the user enormous power. Sparrow is told by the elderly woman that they are the descendant of a great hero, and destined to bring Lucien's downfall. However, Sparrow must first find three heroes in order to defeat Lucien with their combined powers. Given the quest to stop Lucien's plans, the Hero begins a great journey. She or he travels to Oakfield and finds Hammer, a monk who is upset at the fact she is not allowed to fight. When she turns out to be the Hero of Strength, she accompanies the Hero on his or her journey.
Then they set out to find the Hero of Will, Garth. When the Hero goes to his tower, they witnesses Garth's capture. She or he then becomes a guard in the Spire for ten years before they can rescue Garth. When they do, he kills the prison's warden then proceeds to the Hero of Skill, Reaver.
Reaver, a former pirate living in Bloodstone, tells the Hero to take a Dark Seal to his 'friends' in Wraithmarsh (the region surrounding and including the long-destroyed Oakvale from the original Fable). The Seal turns out to be an item marking its bearer for sacrifice to the Court of Shadows so that Reaver can be young forever. The Hero has a choice of sacrificing his or her youth, or the youth of a young woman who is trapped in the Court.
The Hero returns to Reaver at his mansion when Lucien and his army attack, brought by Reaver who wished to collect the bounty on the Hero. When Reaver learns that Lucien will also kill him, however, they escape together through a tunnel and Theresa convinces Reaver to join them until Lucien is defeated.
The Heroes perform a ritual on the hill above the old Guild of Heroes, but Lucien attacks them in the middle of the ritual, killing the Hero's dog and the Hero before capturing the others.
The Hero is taken to a dream-like paradise where she or he, transformed back into a child, spends a day playing with their sister, Rose. Once night falls, however, otherworldly music begins to play. The hero can choose whether or not to follow the music, while Rose pleads for him or her to stay. However, she or he must leave, forcing their way through her or his nightmares, if they ever wish to return to Albion. The Hero then acquires the music box from the beginning of the game. They are taken to the Spire where the Heroes are having their power absorbed by Lucien. The Hero defeats Lucien with the music box and then may shoot him, though delaying this too long will cause Reaver to revive and shoot Lucien instead, sarcastically asking the player if he or she had wanted to do that.
When Lucien dies, Theresa appears and grants the Hero one of three wishes: "Sacrifice", to resurrect the thousands of people killed in building by the Tattered Spire, but not their own loved ones; "Love", to resurrect their dog, sister, and if the Hero was married, his or her family, killed by Lucien while the Hero recruited Reaver; or "Wealth", the gift of 1,000,000 gold pieces delivered to the Guild Cave. Afterward, Hammer either congratulates or admonishes the player based on her or his choice and alignment, then the Heroes part ways and Theresa tells the player that Albion is hers or his to enjoy, but warns them that the Spire is hers. Only the "Love" ending allows post-credits play with the dog, through the "Knothole Island" DLC allows the player to resurrect the dog at Cheet-Ur's Crypt if one of the other endings is chosen.