In the year 2021 AD, the first "Astral Gate" is built in orbit around the Moon; a hyperspace gateway meant to expedite space colonization by making travel between planets a matter of days instead of months or years. This gate is destroyed in an incident that comes to be known as the "Gate Accident"; an explosion that shattered a massive piece of the Moon. Lunar debris began to fall upon the Earth with the same frequency as rain, killing 4.7 billion people and devastating the planet's surface. Fifty years later the human race numbers only 1.5 billion, but has colonized the entire Solar System through the use of perfected Gates.

While the Earth is still inhabited, its few remaining denizens must shelter themselves from the continuing rock falls in underground cities. With reconstruction rendered impossible by the rock falls, the human race instead terraformed the other bodies of the Solar System; Venus, Mars, the Galilean moons of Jupiter, the moons of Saturn and a penal colony on Pluto. Scattered between these planets are a variety of space habitats and a variety of industrialized asteroids. This solar community is maintains a high level of racial and cultural diversity, and continues to use a large number of different languages, artwork and governments. However, its economy is predominantly Asian, using a nondivisible currency called the Woolong.

The population crash has led to a relative stagnation in technological development. The Gates make space travel relatively easy, but artificial gravity is still limited to centripetal force. Directed energy weapons exist, but are large and dependent on heavy power sources. Gunpowder-based projectile weapons are the mainstay of combat, and many gun models from the beginning of the 20th century continue to be widely used.

As the Gates make it possible to cross the System in a manner of weeks, it became unfeasible for law enforcement to pursue criminals away from a given world. Criminal activity increased at every level of society; small-time criminals could act with relative impunity, and ruthless crime syndicates became as powerful as multinational corporations. In response, the bounty system of the Old West was reinstated throughout the System. Bounty hunters are encouraged to capture criminals and return them (alive and relatively unharmed) to the authorities for monetary rewards, in part through a regular television broadcast of "Big Shot", a bounty-hunter news program featuring a heavily-accented Mexican named Punch and a perky blonde named Judy. This TV show is broadcast with a western motif and in the slang of the era, the term "Cowboys" refers to bounty hunters.

The crew of the spaceship Bebop are a partnership of "cowboys" (originally Spike & Jet) who travel the solar system trying to apprehend bounties. The Bebop is made up of a bridge, general living quarters, storage for food and supplies, and a small hanger to allow docking of smaller one-man space vessels. Jet owns the Bebop itself, but has partnered with Spike for his diverse combat skills; he is a master of Jeet Kune Do, marksmanship, and space fighter combat. The entire system is open to them via the Gates...