Fallout: Equestria is set entirely within the universe of My Little Pony: Friendship is Magic, with only superficial ties to the Fallout universe via borrowed concepts and inspired-by technology. The story occurs two centuries after a war between the pony nation of Equestria and a zebra empire which ends in a megaspell holocaust that decimates much of Equestria and the known world. It takes place in a region known as the Equestrian Wasteland, which includes several locations featured in Friendship is Magic, including the ruins of Ponyville, Canterlot, Manehattan, Fillydelphia, and the surrounding countryside.

The Wasteland is home to various environments ranging from barren wasteland to the decimated ruins of pre-war cities, and there are numerous environmental hazards that plague the countryside. The region is perpetually covered by a layer of near-impenetrable clouds which prevents direct sunlight from reaching the ground, restricting the growth of healthy plant and animal wildlife, which is mostly mutated and irradiated.

Cultural, social, and technological advancements have stagnated since the end of the Great War. Numerous small settlements dot the region, home to descendants of survivors from the war, though population remains low due to the perpetual state of lawless anarchy. The lack of any large-scale civilization in the Wasteland has allowed the propagation of numerous violent bands of raiders and slavers, who terrorize and harass the last bastions of civilization. Various Stables, underground installations constructed by Stable-Tec in order to house and protect the citizens of Equestria in the event of a megaspell attack, also populate the Wasteland; some in states of decay, and some still well-preserved and even functioning after centuries of operation.