Set in the year Universal Century (UC) 0087, eight years after the events of Mobile Suit Gundam (0079), the series follows a rebel group called the Anti-Earth Union Group (AEUG) as they try to defeat the Titans, an elite task force of the Earth Federation designed to hunt down Zeon remnants but which ruthlessly kills anyone demanding equal rights for the space citizens in cold blood.

The story of Zeta Gundam is told through the viewpoint of Kamille Bidan, a civilian teenager and amateur mobile suit pilot whose parents are engineers working for the Earth Federation and the Titans. While traveling to the Green Noa colony to meet his parents, Kamille is insulted by and strikes a Titans officer named Jerid Messa. Following an AEUG attack led by Quattro Bajeena on the colony to capture a trio of Gundam Mk-II mobile suits undergoing field tests, Kamille takes the opportunity to steal Messa's Mk-II to repel the attack and follows Quattro back to the AEUG mothership Argama. The Titans, under the order of Bask Om, take Kamille's parents in an attempt to force the return of the stolen Gundam Mk-II's. Jerid, unaware of the hostage plot, mistakenly kills Kamille's mother. Because of this, and many other reasons, Kamille eventually joins the AEUG.

As the war escalates, Kamille encounters people from all sides of the conflict, including brainwashed Titans, artificial Newtypes and the leaders of Anaheim Electronics, who are secretly funding the AEUG. The AEUG eventually launch a full-scale attack on the Earth Federation's assembly at Dakar, leading to an Earth Sphere civil war. Quattro reveals himself to be Char Aznable and presents evidence of the Titans' tyranny including using G3 nerve gas on a defenseless colony. The Earth Federation court soon rules the Titans' actions to be illegal and backs the AEUG in hunting down Titans leader Jamitov Hymem.

After losing the support of the Earth Federation, the Titans turn to their original enemy, remnants of the Principality of Zeon now known as Axis Zeon, to form an alliance to regain control of the Earth Sphere. Axis Zeon's leader Haman Karn contacts the AEUG, using the civil war of the Earth Federation at hand to politically ask for the control of Side 3, the former Zeon colony.

Axis involvement and Jamitov's assassination by Jupiter Fleet commander Paptimus Scirocco soon leads to a battle over the colony headquarters of the Titans, Gryps, which has been modified to be a colony laser. The war ends when Kamille, piloting the titular mobile suit Z Gundam, kills Scirocco in battle and the AEUG sinks Scirocco's flagship and most of the Titans' fleet. However, Kamille himself is psychologically broken and although survives without any physical harm to him or the Zeta Gundam, becomes mentally unstable with signs of memory lapse and/or insanity.

The series concludes with both the AEUG and Earth Federation, after suffering considerable losses over the course of the war, facing the full force of Axis Zeon, leading into Mobile Suit Gundam ZZ.