Before Ares' death, and Kratos opening Pandora's Box, Hephaestus was the most prized craftmen of all Olympus, and was rewarded with marriage to Aphrodite. Hephaestus' deformed appearance may be due to being brutally attacked by Zeus after the King of the Gods was filled with the Evil Fear, and became enraged with Kratos' retrieval of the Box.
When Kratos traveled through the underworld after being dislodged from Gaia, he stumbled upon Hephaestus in his forge. After exchanging insults, Hephaestus revealed that although Zeus was the one to imprison him, Kratos was in fact the true source of his torment. When Kratos inquired about the Flame of Olympus, Hephaestus told of how everyone on Olympus knew and respected it. He continued to warn Kratos, saying that it was powerful enough to kill both man and god. When Kratos insisted upon knowing its location, Hephaestus sarcastically replied by stating that if Kratos could find his way out of the Underworld, he could find the Flame as well.
After killing Hades, Kratos returned to the forge, informing the Smith God of his triumph over the God of the Underworld. Hephaestus then regaled Kratos with his past life as the prized craftsman of the gods, but concluded by stating that his perfect life ended when Kratos killed Ares. Furthermore, the girl whom he considered his daughter, Pandora, had been taken away from him, never to return. He had tried to recreate her in the forge ever since, but failed time and time again. He asked Kratos to retrieve Pandora for him, but Kratos dismissed his request, stating he had other concerns, although Hephaestus tried to persuade Kratos again by reminding the Ghost of Sparta about his own role as a father. Kratos, visibly touched, paused for a moment, before leaving the Forge.
Kratos returned to Hephaestus through the Hyperion Gate connecting the Forge with Aphrodite's bedchamber. At first Hephaestus believed it to be his wife, before recoiling at the sight of Kratos, asking if Aphrodite had "conquered another God of War". Kratos ignored his question, instead demanding to know the whereabouts of the Labyrinth, to which Hephaestus expressed some confusion. He quickly realized that Pandora was being held in the Labyrinth and that Kratos intended to use her as a means of destroying the Flame of Olympus. Hephaestus angrily told Kratos to stay away from Pandora, citing that he was the reason both of them were imprisoned, to which Kratos retorted that he did them no wrong. Hephaestus countered, saying it was because he opened the box, but Kratos replied that he "did what had to be done", at which point Hephaestus began to unfold a bigger picture: In creating Pandora's Box, Hephaestus knew the Flames were the safest place to hold them. To open the Box, he forged a key that took on its own life. Dubbed Pandora, father and daughter would grow to love each other. Aware Zeus would take Pandora from him, Hephaetus lied to Zeus, saying the safest place to keep the Box was on top of Cronos' back. After Kratos used the box to kill Ares, Zeus, driven by madness and fear, angrily battered Hephaestus until he revealed his deceit, despite the fact that Zeus had actually aided Kratos on his quest to retrieve the box from Pandora's Temple. Zeus subsequently took Pandora from her father, and sent him to the Underworld. Hephaestus then desperately attempted to dissuade Kratos from finding Pandora, but the Ghost of Sparta claimed that nothing would stop him from destroying Zeus.
Running out of options, Hephaestus decided to kill Kratos. The smith god first faked wanting to help him, and told the Spartan to travel to the Pit of Tartarus in order to find the Omphalos Stone, so that he could make a weapon for Kratos. Kratos initially did not want a new weapon, stating he already had plenty, but Hephaestus insisted the weapon he would create would be a "special" one. Whilst on his quest, Kratos battled the Titan Cronos, and slew him, taking the Omphalos Stone from his body. Returning to Hephaestus, Kratos was furious, as he believed the Smith God had sent him on a suicide mission. Hephaestus pleaded innocence, claiming that he knew the Ghost of Sparta could handle himself. After completing the Nemesis Whip, Hephaestus tried electrifying Kratos with his ring in a final attempt to kill him.
Kratos managed to shake off the effect and killed Hephaestus by impaling him on his own anvil. In his dying words, the smith god asked Kratos to spare his daughter, as well as begging for Pandora's forgiveness, after which he passed away. Kratos appeared to bear no ill will towards Hephaestus for this betrayal however, as he later told Pandora Hephaestus had done what any father should.