Dhalsim is an Indian monk who believes in the power of yoga, and has great powers which are unattainable by most men. After years of meditation, Dhalsim has gained the abilities to extend his astral self, and has developed his chi to such an extent that he calls upon the Indian god Asura with the power of his soul. Dhalsim has a wife named Sally, and the two live together in Dhalsim's village in India. However, when most of the village becomes sick and begins to suffer from malnutrition and disease, Dhalsim sets off, determined to help the children of his village. Witness to the deaths of several unfortunate children, Dhalsim wears their skulls on a necklace as a reminder to himself of his mission.

Dhalsim first heard of the Alpha tournament after an incident in India. He was battling a huge sumo wrestler name E. Honda, when suddenly Dhalsim could not concentrate his attacks, as another person's chi (Ryu's) was blocking his, and completely distracted him long enough for E. Honda to recover and win the bout. Dhalsim vowed to keep track of the man who had caused his defeat, as the man whose power he felt was unbelievably strong.

And so Dhalsim entered the second Alpha tournament, first to try to raise money to somehow help the children of his village, and second to find Ryu, as Dhalsim could recognize someone by their chi. What Dhalsim found disturbed him, as he "read" a chi that was completely the opposite of Ryu's, but full of dark intention and purpose. Dhalsim confronted the source of this evil, the malevolent being called Akuma, but was soundly defeated. Seeing that Akuma would not stop at his defeat, but at Dhalsim's death, Dhalsim promptly teleported and escaped to safety.

Dhalsim returned a few years later to enter the second Street Fighter tournament. Dhalsim had done much soul-searching in the years between the second Alpha tournament and the second Street Fighter tournament. He now sought to unify his mind and body, and prove to himself that he was a master of the power and abilities of Yoga. However, he still wanted to save the people of his village, and hoped that the offered prize money could help him along that path. Dhalsim eventually crossed paths with Ryu in the tournament. Dhalsim had spent a great deal of time honing his skills, and found ways to neutralize Ryu's chi, so that Ryu's HadouKen was useless against him. Ryu also had a difficult time pentrating Dhalsim's defenses, as Dhalsim, with the ability to stretch his arms and legs, kept Ryu at bay. Ryu, however, had one attack left, the ShoRyuKen, which landed directly on the skulls Dhalsim had on his neck, and cushioned the impact, saving Dhalsim's life. The two conversed after Ryu's win, and Dhalsim returned home, determined to help his people in any way he could...