The Alvarez Empire arc is the seventeenth story arc of the Fairy Tail series. With Fairy Tail's revival accomplished, Mest Gryder reveals the disturbing truth about Makarov Dreyar's disbanding of the guild one year ago. The Seventh Master Erza Scarlet must face her greatest challenge as the new leader, as the guild is about to stand against the most terrifying threat yet, which even the Magic Council is desperately trying, but are barely able to stop. The military-driven Alvarez Empire from Alakitasia is poised to launch a full-scale war upon Ishgar to lay claim to Fairy Tail's secret artifact, Lumen Histoire. And to make matters worse, a familiar and ancient foe with a troublesome past intertwined with Mavis Vermilion's own is pulling the strings, trying to fulfill his destructive agenda. Five days after the formal restoration of the Fairy Tail Guild, the members begin construction of their new building in the crater where their old building once stood. Leaderless, several ideas to locate the Sixth Master are proposed; however, Levy states that they require an immediate Guild Master to complete the legal procedures for the Guild's revival. Meanwhile, a typical brawl erupts between the guild members, only to be easily broken up by Erza. Levy instantly notes down Erza as the Seventh Guild Master, much to the latter's surprise, and the approval of a member nobody seems to remember: Mest Gryder. Revealing that their former Master is in a dire situation, he leads Erza to the concealed Lumen Histoire, forbidding anybody else from following. The rest of Team Natsu promptly trails them, blowing their cover only upon witnessing their Guild's greatest secret. Overlooking their disobedience, Mest then shares his memories about his undercover mission in the Magic Council. His main objective was to gain intelligence about the Western Continent, home of the Alvarez Empire, which attempted to invade Ishgar in X781 to obtain Lumen Histoire, but were dissuaded by the threat of Etherion and Face. However, the aftermath of Fairy Tail's war against Tartaros left Ishgar with no defense against another invasion, prompting Makarov to disband Fairy Tail to protect the members, then depart to the Alvarez Empire in order to negotiate with their authorities and stall them as long as possible. In order to extract Makarov from Alvarez without impeding the Guild's revival, Erza decides that only the ones present in the chamber will participate in the mission. Mest also describes the reformed Magic Council to be under pressure from the potential war threat from the West, just like their predecessors. The supposedly secret dialogue is overheard by Gajeel thanks to his sharp aural senses. He begins to plan the reformation of the B Team from the Grand Magic Games, apparently knowing where to find Laxus. In the Magic Council's headquarters, Levy officially finalizes the rebirth of Fairy Tail.
While there, she also witnesses three of the four Gods of Ishgar, Warrod, Wolfheim and Hyberion, discuss the threat posed by the Alvarez Empire and the defection of Ishgar's top Mage, God Serena, who is now a member of the personal guard of Emperor Spriggan: the Spriggan 12; whose members are on a level equal to his own. Erza's exfil team sets sail for Alakitasia, deciding to resupply at Caracole Island and also get information from Mest's spy who is present there. Meanwhile, as Gajeel's squad travels to find Laxus and his Thunder God Tribe, Gajeel and Levy explain that their unit would provide support to the main team to improve the chances for a successful extraction. Back at the ship, the rescue party approaches Caracole, only to notice the Alvarez Navy in control of the island. When Natsu and Wendy inform the others that their enemy's purpose is to roust out the spy, the team members disguise themselves as members of Cait Shelter to pass through the port authorities' inspection. However, they soon get into a skirmish with some of the soldiers who are about to kill a child. While Wendy and the Exceeds escort the the child to its father and Mest heads off to find their informant, the remaining four defeat their opponents, then discuss their future course over a serving of Star Mango Gelato. Suddenly, the stall they are patronizing is destroyed by a person who introduces himself as Marin Hollow, a member of the Brandish Squad. Erza and Lucy find themselves unable to use their Magic and, after being informed that all forms of Magic that involve dimensional manipulation are nullified by Marin's Spatial Magic, are forcibly teleported to his personal dimension. The Alvarez Mage then brings forth an utterly beaten Mest and engages Gray and Natsu in combat, easily outmaneuvering the two thanks to his expert combination of martial skills and teleportation. But his little game soon ends with the arrival of his superior, the Shield of Spriggan Brandish μ, a woman whose humongous reserves of Magic Power absolutely terrify Gray. Concurrently, completely unaware of their comrades' predicament, Team B relaxes at a hot spring owned by Blue Pegasus, where they are joined by Ichiya, who reveals that Laxus and his bodyguards are currently upstanding members of Blue Pegasus. Back at Caracole, Brandish completely ignores Natsu and Gray and, disappointed to see the Star Mango Gelato store wrecked, declares that she will return, believing the spy to be insignificant as Ishgar is too cowardly to act against Alakitasia. She commands Marin to free the women he has captured, intimidating the man into obedience by raising the entire island onto a pillar of rock. Despite this favorable turn of events, Natsu stalls her departure by complaining about Mest's injuries, so Brandish seemingly disintegrates Marin as a form of compensation. She reveals that she is aware of their true identities and reassures them that Makarov is alive. She then returns to her fleet after shrinking the island to a mere pebble as warning to stay away from her Empire. A fishing fleet soon arrives to rescue the stranded population of the former Caracole Island. After getting his wounds treated, Mest teleports everybody to an underwater temple in order to meet the spy, Sorano, who discloses information about Makarov's whereabouts as the sailing temple Olympia sets course for Alakitasia. In the capital city of the Alvarez Empire, Vistarion, Makarov and Yajeel discuss Fairy Tail's revival and the exemplary hospitality extended towards Makarov, contrary to the rumors regarding the Empire's operation. Just as Yajeel mentions that dialogue with the emperor is rare due to his love of travel, crowds in the street begin to celebrate the return of their beloved sovereign. The two old men head out to witness the spectacle, but Makarov is shocked to see that the emperor is none other than Zeref himself. Zeref returns to his castle and orders for the Spriggan 12 to gather, he's met by four of them, including Invel, Dimaria Yesta, Ajeel Ramal, and August, as well as Yajeel who directs him to Makarov, informing of his need to meet him. Zeref and Makarov go somewhere private and talk, with Zeref revealing that he is indeed the Emperor of Alvarez, having created the country and kingdom a long time ago so he may have the forces he needs to fight Acnologia and capture the Lumen Histoire or as the two know it, the Fairy Heart. Zeref also reveals that he will start the real Dragon Festival: A war between the humans, Acnologia and himself to see who survives. Makarov tries to attack him after hearing this, but Zeref holds him in place with his Magic, thanking him for raising Natsu.
Before he can deliver the final blow, Mest suddenly warps in, grabs Makarov and teleports away back to the forest where Team Natsu awaits. As Mest recovers, he informs the group he saw Zeref, much to Natsu's anger. Makarov then laments the pointlessness of trying to negotiate with the Emperor, but Team Natsu assure him they understand his actions and inform him of Fairy Tail reforming, with Natsu telling him they've come to take him home. However, they're suddenly found by Ajeel whose power over sand allowed him to track the group. As Mest is low on Magic Power, he can only make one more teleport, and is saving it for reaching the shore to jump to Sorano's vehicle, Makarov orders everyone to run. They do so, with Erza driving a Magical Vehicle and Gray and Lucy trying to slow Ajeel down with their new powers. It seems to work until Ajeel creates a sinkhole under the vehicle, intending to bury them in sand, all the while gloating of his superior power. However, much to Ajeel and Makarov's shock, the group manages to bust out of the sinkhole before Natsu punches Ajeel in the face. Despite the hit, Ajeel recovers and unleashes a major sand attack on the group. Makarov manages to save Team Natsu proclaiming he won't let Ajeel hurt them. But the Spriggan Guard responds by sending a gigantic sand tidal wave at them that'll disintegrate everything. Just as it's about to hit, lighting suddenly vaporizes the wave. The group see that it's Blue Pegasus's airship with Laxus standing on it along with the rest of Gajeel's group aboard it. Seeing this, Mest teleports their group into it. When Ajeel tries to attack, Laxus sends a major lighting attack down to stop him, allowing the group to get away. Though August manages to save Ajeel thanks to a barrier he threw up at the last moment. Zeref, sensing this, states that things are just in the beginning phase. As everyone reconciles on the ship, Makarov smiles and cries, stating Fairy Tail is the best family one could wish for. The parties all return safely back to Magnolia and the guild hall celebrates the return of Makarov. Erza quickly gives up her position as guild master to Makarov, now making him the eighth master. After a bit of partying, Makarov gets everyone's attention and apologizes to them for his actions in disbanding the guild. He also warns them that Alvarez will soon be coming for them, although Natsu assures him that the guild will be willing to fight, which everyone agrees with. Makarov then proceeds to tell them about the Lumen Histoire, but Mavis steps in and offers to do it herself, beginning to detail her past with Zeref and what lead to the current situation. Mavis recalls her first meeting with Zeref in the forests west of Magnolia, who taught her and her companions Magic in order to battle Blue Skull and liberate the city. Her usage of Law granted them victory and saved Yuri Dreyar's life, but at the cost of Mavis' ability to age. In year X686, Fairy Tail was founded, and shortly after the Second Trade War broke out between the feudal lords, where Mavis proved her genius on the battlefield, earning her the title of Fairy Tactician. Mavis met Zeref once again in year X696 and thanked him for his tutelage. Zeref reveals his identity to Mavis, which surprises her, and reveals to him that she used Law, much to Zeref's shock. He tells her that her life-or-death choice brought Ankhseram's curse upon her, and the only reason it did not activate yet was because she did not value the lives of others due to her participation in the Trade War, but once she becomes aware of the preciousness, the curse will activate. Mavis then runs away to the guild in tears, recalling Zeref's words. Mavis then attends the moment of Makarov's birth in the guild and becomes his godmother. As Mavis grabs Rita's hand, she unwillingly kills her, realizing that Zeref's words came to pass and horrified, she flees the guild, forcing herself on self-imposed exile, having outburts of Death Predation taking many lives on the way. One year later, she is yet again encountered by Zeref, with Mavis visibly broken and wishing to die of starvation, yet to no avail. Zeref then explains what he has been up to all the time: creating Etherious to kill him, as well as his involvement with Alvarez Empire, of which's construction and rule treats akin to a game. As he explains his reasons, Mavis notices that even his thoughts contradict each other while he is suddenly having one of his breakdowns, including his lifetime wish for Natsu to end his life, then him switching to a want to kill his brother instead. Mavis then wovs to help Zeref to find a way to end their curses, proclaiming mutual love. However as Mavis and Zeref kiss, the power of his own curse overwhelmed Mavis', ending her immortal life and pushing Zeref even further into darkness. Having found something to live for again through love after previously discarding the value of life, it was the ultimate contradiction of the curse, causing Mavis to die even though she was supposed to be impervious to death. Zeref, grieving over the loss of the person that was willing to help him overcome his curse, encounters his other student and friend of Mavis, Precht Gaebolg: the man who later will become known as Hades. Precht regognizes the Black Wizard and that he is carrying the First Master on his arms. After a brief conversation, Zeref unceremoniously drops Mavis on the ground, saying that he came to return her back to the guild. Zeref reveals his identity to Precht before walking away, comparing himself to a polar opposite of what Mavis was, a Spriggan to Mavis' Fairy, before departing to Alakitasia in order to continue running his growing Alvarez Empire, remarking that he shouldn't, or rather couldn't ever fall in love. Precht then senses a residual Magic source still dwelling inside Mavis' seemingly lifeless body and attempts to revive her, but to no avail. He later realizes that the Magic was in actuality the still active Curse of Ankhseram, which left Mavis' body in a state between life and death. He then created a ruse about Mavis' death and made a fake grave on Tenrou Island, as well as became officially the Second Guild Master of Fairy Tail. Thirty years later, Precht's efforts ultimately gave birth to a limitless font of Magic, known as the Eternity Magic: Fairy Heart. Mavis also reveals that Zeref is most likely after Fairy Heart to make it a power source for his own forces in order to take down Acnologia. Natsu then reveals that he developed a secret, powerful technique sealed under the bandages on his right arm, powerful enough to take down even the immortal Zeref.