Having resolved the human-Eldren war, Erekosë finds himself once again called to a strange world to defend Earth from invaders. This time he is Count Urlik Skarsol, Lord of the Frozen Keep, sleeping hero of a frozen and dying Earth. At Rowernarc, the Obsidian City, he hears of the Silver Warriors from the Moon, which long ago crashed into the other side of the Earth. But nobody in Rowernarc seems to fear them--nobody, indeed, seems concerned with anything but whiling away the time until death. With nothing to do and no foe to fight, Erekose wonders who could have called him and searches for a way to return to his lost love.
In The Eternal Champion, Erekosë bore the sword Kanajana, a weaker version of Stormbringer. As Urlik, he finds the Black Sword in its purest, most virulent form. Like Stormbringer, Urlik’s Cold Sword is vampiric and sentient, and it demands the blood of friends as the price for its aid.
The title Phoenix in Obsidian comes from a scene halfway through the book, when Erekosë, in the guise of Urlik, spends a short time in an obsidian cave. He reflects that he is like a phoenix, immortal by virtue of being reborn time and again, yet he is trapped in the obsidian cave like a fly in amber.
When the story begins, Erekosë has ended the war and found peace. Then the dreams of eternal struggle, that tormented him in The Eternal Champion, begin again. He finds himself transported into the body of Urlik Skarsol, driving a chariot pulled by polar bears across an ice sheet. He encounters a party of humans who take him to Rowernarc. There he meets the debauched Bishop Belphig and the ascetic Lord Shanosfane.
Belphig eventually invites him on a hunt for the fearsome sea-stag. On the trip, Urlik begins dreaming of the Black Sword; then, while he is awake, a mysterious bell tolls, a Screaming Chalice appears, and a voice orders Urlik to take up the Black Sword. Finally they hunt the sea-stag to its island lair. Many of the hunters are killed and, though he succeeds in killing the stag, Urlik is left for dead. He is rescued by another party from the wholesome human settlement of the Scarlet Fjord, led by Bladrak. On the advice of the Lady of the Chalice, they have been ringing the bell that summoned him from his life as Erekosë. They have with them the Cold Sword, which he instinctively fears.
During a raid to rescue prisoners from the Silver Warriors, Urlik learns that Belphig has been engaged in slave trade with them. Bladrak summons the Lady of the Chalice for advice. She tells Urlik to take the Cold Sword and rescue Shanosfane. Shanosfane reveals that Belphig commands the Silver Warriors because he holds their Silver Queen hostage; then he is killed by the Cold Sword. Soon Belphig places the Scarlet Fjord under siege and the situation becomes desperate. Again they consult the Lady, who tells them that the Silver Queen is held hostage on the Moon.
Urlik rescues the Queen and learns that she is also the Lady, who was able to advise them remotely. They return to the Scarlet Fjord. When the Silver Warriors see that their Queen is free, they turn against Belphig. After the battle, she tells him of a legend that the chalice contains the blood of the sun. Suddenly Urlik understands his dreams. The two go out on the ice. While she summons the Screaming Chalice, he kills her. The Black Sword pours its blood into the Chalice, then the Chalice is taken up to renew the sun and the Sword vanishes.
In The Quest for Tanelorn, Erekose learns more about the events that concluded Phoenix in Obsidian. Renewing the sun, an act that aided humanity, was so greatly counter to the nature of the entity Stormbringer that it was driven out of its habitation in the Black Sword and was forced to seek another body.