It has been about a year and a half since Squall and his friends defeated the Sorceress Ultimecia. In Balamb, the island had prospered peacefully. For Galbadia, a new government has been formed. A parliament was formed, along with an elected Prime Minister. Galbadia, with no new leader to turn to, elected General Caraway to be Prime Minister of the Republic of Galbadia. The first thing he did was he granted independence to the Dukedom of Dollet, and Timber. A treaty with Esthar has been made as well for cooperation. Laguna Loire, along with Kiros and Ward returned to Esthar to continue on their presidential roles. In Trabia, under the supervision of Cid Kramer, Edea and Selphie Tilmitt, the Garden there has been rebuilt. As for Balamb Garden, it returned to its original location in Balamb and within a few months, it was rebuilt on the crater where the missiles hit.
Laguna invited Squall and Rinoa to his residence in Esthar. He had a confession to make to Squall. He revealed to him that he is Squall's father, and Raine was Squall's mother. Squall at first had a hard time accepting this information, but he took it in. Squall would then spend two months with his father, Laguna, talking about life. This would inspire Rinoa travel to Deling City and reconcile with her father, General Caraway.
As for the Squall's other friends, Quistis would take a more administrative role in running Balamb Garden with Cid and Edea. Xu would be her assistant, as Nida (the guy who passed the SeeD exam with Squall, Zell and Selphie) would be an instructor. Zell spent some more time with the girl from the library while trying to fix up some of Balamb's problems (much to the annoyance of the residents who do not like him). As for Selphie and Irvine, they decided to hang out in Trabia, while Selphie showed Irvine various places.
However a string of problems will arrive. Even though Squall and his friends have been hailed as heroes and legends to the world, new enemies have risen, challenging the peace and stability of the world.