The show revolves around Ben Tennyson, his cousin Gwen, and his grandfather Max. During the start of their summer camping trip, Ben is nearly hit by an alien pod that fell from space and crashed next to him. When he examines it, he finds a mysterious, watch-like device, called the Omnitrix, stored inside. The device attaches to his wrist and gives him the ability to transform into a variety of alien life-forms, each with their own unique powers, quite similar to DC's "Dial H for Hero" comic. Although Ben realizes that he has a responsibility to help others with these new abilities at his disposal, he is not above a little super-powered mischief now and then.

In the distant future of 3037, Earth is fighting a losing war with an alien race known as the Glorft. In order to save the planet, the human resistance steals a prototype giant robot from the Glorft and modifies it, renaming it Megas (Mechanized Earth Guard Attack System). The idea was to send Megas back to the Battle of the Last Stand in 3035, which was the last major offensive fought by humanity against the Glorft. Humanity lost that battle, but the members of the resistance believe that Megas can tip the scales and hand the Glorft a decisive defeat.

Before the plan can be executed, an attack by the Glorft forces the human resistance to send Megas back in time ahead of schedule. Kiva, one of the main architects of the plan, decides to pilot it and attempts to transfer into it from her own mech. During the attempt, Megas' head is blown off by enemy fire, destabilizing its timedrive and sending the robot to 1936. Megas languishes in a New Jersey junkyard until it ends up in the hands of two slackers, Coop and Jamie (who bought it for two dollars which Coop didn't pay anyway), around the year 2004. Coop turns Megas into a hot rod project and names it XLR, for eXtra Large Robot.

In this world, imaginary friends become real the instant a child imagines them; unlike how the concept often works on other shows, an Imaginary Friend is totally real, and can be seen, heard and felt by all under most circumstances. Unfortunately for the imaginary friends, the children outgrow them. When that happens, the friends are left to fend for themselves. Foster's Home for Imaginary Friends was founded by the elderly Madame Foster to provide a foster home (hence the title) for abandoned imaginary friends; their motto is "Where good ideas are not forgotten." There are (according to "Setting A President") 1,340 imaginary friends at Foster's Home. It has been suggested that the house itself may be imaginary, as well. In the end of "Emancipation Complication" Madame Foster states that there are 2,038 imaginary friends currently residing in the house plus Bloo and Mr. Herriman, suggesting that the house may have grown larger during the time. This is probably why they were very busy and overcrowded in that same episode.