Thousands of years ago, during a war with the corrupt Elder God known as Shinnok, Raiden was held responsible for the death of an entire civilization. To avoid this event from repeating itself, as well as to protect all realms from the Shinnok threat, Raiden has waged a brutal conflict and, at a heavy price, exiled his rival into a dark place known as the Netherealm. A few years before the 1992 Shaolin Tournament (referring to the setting of Mortal Kombat Mythologies: Sub-Zero), the Elder Gods and Shinnok were fighting over an amulet, which turned to be a fake one and, thanks to the help of the original Sub-Zero, Quan Chi, a necromancer, had obtained the real one. Now (1997), he has allied himself with Shinnok, and helped him escape from his confines some time after Shao Kahn's defeat at the hands of Earth Realm's fighters. With the help of an Edenian traitor, they enter the Heavens and kill most of the gods, but Fujin and Raiden escape and gather Earth Realm's finest warriors to fight them. The Raiden-Shinnok feud has burst open once again, but this time... the battle can be won by Mortals!

Early on, the development team at Midway decided to make a 3D Mortal Kombat to capitalize on the rising popularity of 3D games at the time. Midway decided to develop its own hardware, named "Zeus" from scratch however, resulting in development delays (a large amount of the game was tested on two dimensional hardware using pre-rendered characters). As revealed in later interviews, programmer Ed Boon was particularly concerned maintaining the gameplay feel of a 2D game but with 3D graphics. He at first was worried that there was some intrinsic property of 3D graphics that would make this impossible. Essentially, the major gameplay difference between 2D and 3D fighting games of the time, was that up to that point all 3D fighting games had attempted to somewhat simulate realistic martial arts. One of the reasons this was done was to take advantage of the fluid keyframed and motion captured animation that was now possible using 3D models. For example, in Virtua Fighter, a real martial artist was filmed performing the moves, and this movement was imposed on the 3D model in the game. Thus, while a punch in a 2D game might be a rapidly responding move with two frames of animation, a punch in a 3D game might have a delay between when the button was pressed and when the opponent was hit, owing to the realistic animation. This delay however fundamentally changed the gameplay experience. Boon eventually decided to use the non realistic 2D rates of animation and movement, simply imposed onto 3D graphics. Thus the gameplay experience is nearly identical to the 2D versions of Mortal Kombat. While this was attempted before with the Street Fighter EX series, that series used more complex animation which did change the gameplay somewhat. Some critics however, were disapointed that Mortal Kombat 4 did not play like other popular 3D games of the time.

The problems with the game hardware led to development delays, so much so that the game was essentially released as a "public alpha test", with only about half of the characters playable, and some characters such as Noob Saibot obvious placeholder characters. Many characters were changed at the last minute when it was realized that the game was not going to have enough new characters. For example, the skin texture map of Kano was changed into a new character called Jarek. Instead of attempting to rid the game of infinite combos, a work around known as "maximum damage" was put into place, where any combo appearing to cause more then 50 percent damage was interrupted.

MK4 is the first Mortal Kombat game to have entirely computer-generated characters, although the texture maps of the characters were taken from most of the live-action actors of the previous games. It was revolutionary at the time, although the character models now appear dated.

MK4 introduces a limited weapon system to the series.

MK4 also introduces 3D combat, although limited to sidestepping as opposed to the 8 way walk movements in Soul Calibur.

Initial reaction to the new 3D look of the series (as is often the case with long running series) was negative, but MK4 managed to be a financial success due to an aggressive advertisement campaign which included a set of live action adverts filmed in Mexico and a US-wide tour of the arcade version by the game's creators which helped spread the word.

Although the game was hugely popular, it failed to pull Mortal Kombat out of a slump that began that same year. In fact, from 1997 to 1999, the series waned due to several Mortal Kombat projects that were either short lived, mediocre in quality, or shoddy all together. It was also the time in which John Tobias, the main storyteller, and much of Midway's staff resigned since the industry had recently made one flop after another.

MK4 was also to be the last Mortal Kombat game released in the arcades due to a dramatic drop in arcade popularity around 2000.