The expansion pack takes place on the Shivering Isles, ruled by the Daedric Prince of Madness, Sheogorath.[4] The realm is divided into two sections: Mania and Dementia, both of which have different characteristics in the art and design. The player enters the realm as an event called the Greymarch, in which the Daedric Prince of Order, Jyggalag, completely destroys the Shivering Isles, is about to occur.
On entering the realm, the player has access only to one area of the Shivering Isles, called the Fringe. To gain access to the other areas, the player must defeat a creature called the Gatekeeper. Before entering the other areas, the player is summoned for an audience with Sheogorath. Sheogorath explains to the player that the Greymarch will destroy the realm, and Sheogorath needs a "champion" to stop the event from occurring. Sheogorath decides to choose the player as his protégé, whom he sends off on various quests in an attempt to stop the Greymarch.
Sheogorath and the player's attempts to stop the Greymarch ultimately fail, though, and Order invades the Shivering Isles. As the player defends the Court of Madness, Jyggalag himself eventually appears. The player defeats Jyggalag, and the Greymarch stops. It is then revealed the Jyggalag is, in fact, Sheogorath himself. When the Daedric Princes were creating their own lands, Jyggalag, the Prince of Order plotted against the other Daedric Princes, however they cast him down, and cursed him with madness causing him to become Sheogorath, the Prince of Madness. However since the lives of Daedra are subject to a reincarnation cycle Jyggalag/Sheogorath is doomed to relive this event at the end of each era, at which time the Greymarch occurs, and Sheogorath again becomes the Prince of Order for a limited time. After the player defeats Jyggalag, Sheogorath makes him the new Madgod of the Shivering Isles, but tells the player that he does not think that they can become a "real" Daedric Prince...