In the night of October 1986, protagonist Miku Hinasaki goes to the defunct Himuro Mansion in search of her older brother, Mafuyu Hinasaki. Mafuyu has been missing for over two weeks since he had gone into the same Mansion to look for his mentor, Junsei Takamine.
The game-play story begins with Mafuyu's exploration of the Himuro Mansion; with graphics in grainy black and white to signal players that it is a flashback. Armed with a Camera Obscura, Mafuyu enters the Mansion. Upon finding Takamine's notebook, Mafuyu sees a vision of Takamine's last moments. Subsequently after the vision, Mafuyu gets attacked by one of the evil spirits of the Mansion, which he successfully wards off with the Camera Obscura. Mafuyu's mysterious disappearance was linked to his encounter with the malicious spirit of the Mansion, Kirie.
The main story starts when Miku Hinasaki enters the Mansion. The only trace she finds of Mafuyu is of their mother's old Camera Obscura, which Mafuyu brought with him. Upon realizing that she is now trapped in the mansion, Miku continues to search for her brother and a way out. In the process, she discovers gruesome facts and history of the Shinto Rituals conducted in the very Mansion, which Takamine was originally researching on.
After encountering more vicious spirits(that were mostly the victims of the Mansion's curse), Miku finally discovers that Mafuyu was still alive and well, but just as trapped in the Mansion's dimension as her. Mafuyu's survival in the mansion was partly because of his resemblance to Kirie's long lost lover- hence Kirie did not harm Mafuyu and instead, protects him. Miku learns of Kirie's past through flashbacks and notes in Kirie's celler. Fearing that Kirie's love would prevent her from fulfilling her duties, Lord Himuro had ordered her lover to be murdered. Upon knowing the truth, Kirie's grief and resulting doubts in her obligations resulted in the failure of the Shinto Rituals. This failure allowed the Hell Gate to open, unleashing the great curse called "the Malice". The curse subsequently plagues the Mansion for years, and was the reason for the viciousness of Kirie's spirit.
At the end of the game, Miku manages to rescue Mafuyu and free Kirie of the darkness caused by the curse. At this point, players would get endings diverge. In one ending, the underground cavern crumbles and Mafuyu chooses to stay at Kirie's side so that she will not be alone again. Miku escapes the disintegrating mansion alone. Mafuyu disappears together with Kirie. After she escapes, Miku sees the glowing lights of the entrapped spirits of the mansion freed into the night sky. Another ending shows Miku escaping with Mafuyu, leaving Kirie behind. The third ending (which is exclusive to the Xbox version) has Miku escaping with her brother and has Kirie's lover return to her to be together with her at the underworld gate for all eternity. For all endings, Miku explains that after that day, she "stopped seeing things that other people can't see". According to the events in Fatal Frame III: The Tormented, the first ending is the canon ending.
The original game was later ported to the Xbox. The Xbox version included smoother graphics, more costumes, more ghosts, an exclusive "Fatal Mode" that can be unlocked by completing the main game, and a new ending exclusive to the Xbox version.