The Elric brothers, Edward age 15, and Alphonse age 14 have traveled to the desert town of Liore to investigate rumors they've heard of the Philosopher's Stone's whereabouts. There they learn of Father Cornello's 'miracles' from the locals after transmuting a radio Al knocked off the shopkeepers shelf. They are very excited and surprised Ed and Al can do the same 'miracles' as their esteemed religious leader, which immediately raises the boys' suspicions about his legitimacy. The locals admit they have heard of Edward after he introduces himself as the Fullmetal Alchemist.

A local girl named Rose stops by the shop on her way to the temple, and wishes Ed and Al good luck in their search. After she goes, the shopkeeper tells them about the deaths of her loved ones that has left her alone in the world, and that Cornello turned her faith around with his miracles and ability to raise the dead. Ed doesn't like the sound of that, so and Al go to the church, where they run into Rose again. She has been to see Cornello personally about something mysterious. She asks Ed if he and Al are going to join their church and Ed insults her faith in religion and God, explaining that he believes in science, and that in a sense scientists are the closest things to God, striving for the pursuit of truth.

Rose takes the boys to Cornello's demonstration, where it is obvious to them he's using alchemy, but somehow abusing the laws of equivalent exchange. The principle of equivalent exchange is that one can only create an amount equal to the parts they start with, nothing more, and a substance can only be created from the same type of substance. After realizing he must be utilizing something in the ring he wears, they arrange a meeting with him.

Realizing who the brothers are, Cornello has his henchmen attack them, and during the battle, it is discovered that Al is only a hollow suit of armor. Rose is horrified, and they explain to her being the way they are is their punishment for trespassing against God. They ask Rose if she has the courage to face the truth, and the Elric's make their way to Cornello, who is waiting for them. He denies their accusations that he uses alchemy to perform his miracles, until Edward mentions the Philosopher's Stone and Cornello finally admits to everything, explaining that he needed the townspeople to trust him so he would have an army of religious fanatics willing to blindly give their own lives for him. Rose hears everything, having been hiding inside Al's armor and is devastated by his lies, asking if it's true, that he can't bring her loved ones back from the dead. He tells her it's true he's not a man of God, but that with the stone, he could still bring her loved ones back to life and she goes with Cornello, insisting it's the only choice she can make.

Cornello sics a chimera he has created on the brothers, and is shocked to discover Edward can transmute objects without the use of a transmutation circle. When the chimera attacks Ed, he reveals his right arm and left leg are made of automail, which is what earned him the State Alchemist title The Fullmetal Alchemist.

Still mid-battle, Cornello tells Rose that Edward and Alphonse are the way they are because they attempted human transmutation, which is forbidden by the laws of alchemy. Alphonse narrates their attempt to bring their mother back from the dead using alchemy explaining how things went wrong and Edward lost his left leg and he lost his whole body so Ed sacrificed his right arm to bind Al's soul to the suit of armor he now inhabits. Ed and Al reveal their reason for searching for the Philosopher's Stone is their hope to return themselves to their original bodies.

Cornello transmutes his walking staff into a machine gun and the Elric's take Rose and escape after fighting through more henchmen. Alphonse borrows the town bell and while drawing a transmutation circle tells Rose more about their failure to transmute their mother back, while Ed waits for Cornello in his office. When Cornello finds Ed, he brags that the town and all his followers are merely pawns that he will use when war comes to Liore and that he doesn't have any qualms about conning them the way he has, not realizing that Ed and Al have turned the bell into a giant megaphone and used his own PA system against him, letting the entire town in on his scheme.

Furious, Cornello tries to transmute another gun, but the Stone backfires and causes his arm to mutate before shattering right in front of Ed. In a rage that he came all the way across the desert for a fake Philosopher's Stone, Edward transmutes a giant statue to scare Cornello, and returns to Al and Rose to give them the bad news about the Stone. Rose is heartbroken that everything she believed in was a lie and doesn't know how to live now. Ed tells her she'll figure out what to do and keep moving forward since she has two strong legs to tak her there. The Elric's continue on in their journey for the true Philosopher's Stone.

Back at Cornello's palace, the townspeople are storming his door and he tries to flee, only to run into Lust and Gluttony who gave him the fake Stone in the first place. Confronting them about the fake Stone, they reveal that they were only using him to stir up a little trouble in Liore, and dispose of him since he's no longer needed.

Ed and Al have traveled by train from Liore to Youswell, a poor, run down mining town on the Eastern border. The boys immediately run into Halling, who happens to run the only inn in the city, and his son Khayal. The town is in such bad shape, Halling charges appalling prices for his rooms, and Ed considers transmuting money to use (even though it is against the laws of alchemy) and instead ends up fixing some broken things in exchange for a room. However, Edward is promptly kicked out when it is discovered he is a State Alchemist.

Alphonse isn't a member of the military, so he's allowed to stay and in talking to Khayal finds out that the townspeople are being monetarily abused by Lieutenant Yoki and in turn hate any soldiers or anyone associated with the military. He passes this information on to Edward after sneaking out food to him and at almost the same time, Yoki arrives with his underlings wanting money and Khayal throws a towel in his face. Edward arrives just in time to save Khayal from a sword and realizing he's a State Alchemist, Yoki gives him star treatment, inviting him to his mansion for a fancy dinner and offers Ed a bribe to mention Yoki to his higher ups back at Central. Edward plays along and accepts all Yoki's offerings, even spending the night in his mansion.

That night, Yoki has the inn burned down and the next day Khayal asks Edward to create gold for them and he refuses under the principle of 'equivalent exchange' and suggests they just find somewhere else to live. Halling responds saying the mines are their homes, as well as their graves. Edward takes Alphonse to the culm cars and transmutes the culm into bars of gold that he uses to buy the mines off of Yoki, asking him to sign a paper saying he gave them to Edward for free, since transmuting gold is illegal, which he does happily.

Ed and Al go back to Halling and the townspeople revealing that they bought the town but they'll sell it to Halling for the price of one night's stay in his inn. Immediately following the sale, Yoki appears wanting to know what happened to the gold and asking for the mines back. Edward tells him he changed it back to culm right before he left his palace and that he's already sold the mines to Halling, but not before pointing out that Yoki gave them to him free of charge. Yoki leaves with his tail between his legs and everyone celebrates for the rest of the night.

General Hakuro and his family are aboard a train from New Optain on their way to vacation, when the train is hijacked by Bald and the rest of the Blue Squad. Colonel Roy Mustang and his men have received news of the hijacking and are discussing how to resolve the matter, when they realize Ed and Al are on the train. A couple of the hijackers wake up Edward and he attacks them without even realizing the situation. Ed and Al tie them up and force one to tell them where the rest of the hijackers are and Ed heads out the window and runs on top of the train while Al heads through the cars.

News of contact with their men ceasing reaches Bald and the hijackers with General Hakuro, causing the General to make some remarks about the hijacker's plans falling apart and them being slime. Bald reveals that his left arm is an automail gun by shooting part of the General's left ear off to reprimand him. Hearing noises above him, Bald shoots into the ceiling, hitting Ed's left foot. After recovering, Ed heads for the engine room and easily overtakes the hijackers there with the help of the train workers.

Transmuting a water pipe into the car harboring the General, Bald, and the other hijackers, Ed floods the car after they refuse to surrender the hostages. While Al deals with the other hijackers, Ed squares off with Bald, astonishing him with the fact that 'a kid' has an automail arm was well. Al arrives just in time to help Ed finish him off. When the train arrives at the station, Ed isn't very pleased to see Colonel Mustang, and Bald attempts a last ditch effort to attack, but Colonel Mustang snaps his fingers and sets Bald on fire, revealing that he is the State Alchemist known as The Flame Alchemist.