Trained in the ways of the Order of Light, Kung Lao is the last known descendant of the Great Kung Lao, a former Champion of Mortal Kombat, who lost the title to Goro 500 years previously, resulting in Lao's death at Goro's hands and the start of Shang Tsung's rule over the tournament. Like his friend, Liu Kang, Kung Lao is also a member of the White Lotus Society. Kung Lao was originally the one to represent the Shaolin in the Mortal Kombat tournament but he declined, knowing of the consequences of becoming champion. As a result, Liu Kang was chosen and emerged as the winner. When the Shaolin Temples were attacked by Baraka and his Tarkatan soldiers, Liu Kang and Kung Lao resolved to travel through the portal to the Outworld and avenge their fallen Shaolin brothers. Although he joined his friend in his furious quest, Kung Lao's ultimate goal was to rebuild the White Lotus Society at the Wu Shi Academy, in order to train a new generation of warriors for the coming ages. He, along with Liu Kang, ventured into Outworld to do battle with Outworld's forces in a new tournament. Following Shao Kahn's defeat at Liu Kang's hand, the monks returned to Earth and began training the next generation of Shaolin warriors.
When Shao Kahn's invasion of Earthrealm came, he had to temporarily scrap his plans for reforming the Society. Eventually, Kung Lao faced Shao Kahn; the Emperor of Outworld blasted Kung Lao with a powerfull spell and injured him so badly that he was believed to have died. Hearing of Kung Lao's apparent death enraged Liu Kang, as he challenged Shao Kahn and successfully defeated him for the second time.
With Outworld driven back, Kung Lao decided not to return to the Shaolin Temples, instead allowing everyone to believe that he was dead and went on to live a life of peace in respect to the beliefs of his ancestors. This would not last long however, as he was drawn away from his newfound peace to help fight against Shinnok's forces, when word reached him that Goro, the Shokan warrior who had killed the Great Kung Lao centuries ago, was still alive. After Shinnok's defeat, Kung Lao attacked Goro, who had signed a peace treaty with the Centaurs under the mediation of Princess Kitana. Instead of being an attempted assassination, however, the blow was a ceremonial strike of vengeance for the Great Kung
Kung Lao in Mortal Kombat: Deadly Alliance.
The next years were peaceful. This ended on a brutal note at the time of Mortal Kombat: Deadly Alliance, when the sorcerers Quan Chi and Shang Tsung united and murdered Liu Kang in a vicious attack (Shang Tsung posing as Kung Lao to get close to the champion). Kung Lao found the body of his longtime friend, and was told immediately by Raiden that Shang Tsung was the assassin, who had formed the Deadly Alliance with Quan Chi. Enraged, Kung Lao vowed revenge upon the sorcerer, and once again abandoned his pacifist Shaolin beliefs. He believed his current skills were insufficient to defeat Shang Tsung. So after meeting with the other Earthrealm warriors and traveling to Outworld, Kung Lao sought the advice of the martial arts teacher Bo' Rai Cho. Bo' Rai Cho trained Kung Lao for a short time, teaching him the 'Whirlwind Kick' maneuver. Together, they joined the other warriors in the assault against the two sorcerers. Kung Lao would not rest until Liu Kang was avenged, and Shang Tsung had paid with his life. He then invited Bo' Rai Cho to join him in going back to Earthrealm and train more warriors at the Wu Shi Academy.
The assault against the sorcerers did not end well. With Liu Kang dead, Raiden and his companions were fighting a losing battle. Kung Lao and Kitana challenged the Deadly Alliance, with Kung Lao battling Shang Tsung one on one. Despite his improved skills, Lao's strength was inadequate in comparison to Tsung's and was killed. Furthermore, Kitana died at the hands of Quan Chi, leaving only Raiden to battle the Deadly Alliance. However, Kung Lao was revived by Onaga as a slave during the events of Deception. Ermac's Deception ending, which shows him and Liu Kang's spirit being successful in rescuing the enslaved Earthrealm warriors, is generally accepted as the possible explanation of how Kung Lao is freed from Onaga's grasp.
Kung Lao is depicted in Shaolin Monk as feeling almost resentful of Liu Kang's victory in the Shaolin tournament. Although he and Liu Kang are shown to be friends - much of the time - he constantly baits his fellow Shaolin monk, especially regarding Princess Kitana, and the tournament that "Raiden" (in reality, a disguised Shang Tsung) has sent them to compete in. A rivalry between the two Shaolin monks was hence established for the first time in Shaolin Monks. As the two fighters defeated Shang Tsung's warriors, they gained victories in Mortal Kombat, forming a race of sorts to become the Champion of Mortal Kombat. Kung Lao, especially, is seen gloating to Liu Kang that he will win this tournament. This rivalry escalates until the two warriors are convinced that the other has been corrupted by the Outworld.
This character is completely at odds with the Kung Lao in Mortal Kombat Gold and Mortal Kombat: Deadly Alliance. In these games it is established that Kung Lao is, at heart, a man of peace; he fights when he must - to defeat Shinnok, to avenge Liu Kang and stop the Deadly Alliance - but, at his core, he wishes to pursue the pacifist ideals of his ancestors, and thus he disappeared after his "death" in Shao Kahn's invasion to live his life according to these principles. In contrast, the Kung Lao in Shaolin Monks is eager to fight, and has an almost desperate need to "beat" Liu Kang in the Outworld, supposedly to "free his ancestors". With the somewhat immature dialogue at times between Liu Kang and Kung Lao in Shaolin Monks, many fans were angry at the way the noble Shaolin monk had been portrayed as a battle-hungry glory-seeker.
Fujin's bio for Mortal Kombat: Armageddon describes Kung Lao as having joined forces with the God of Wind to bring their former comrades Raiden and Liu Kang under control, with the God of Thunder becoming "as ruthless as Shao Kahn" and Liu Kang's corpse selectively slaying various people. Fujin then goes on to state in his bio that if no way was found to revert the two corrupted warriors back to normal, both he and Kung Lao would be forced to finish them. It is as yet unknown what Kung Lao's outlook on this matter is, at least until his own bio is officially released by Midway.
In his Armageddon ending, Kung Lao goes back in time after defeating Blaze. He meets his old ancestor, and with his blessing, takes his place in the Mortal Kombat tournament. He defeats Goro and becomes the MK Champion and was a legend. As a result, Liu Kang never competed, and his and Kung Lao's rivalry with him never came to be. 
With the release of Mortal Kombat: Armageddon, it seems - to the disappointment of many fans - that the creative team are considering the rivalry between Liu Kang and Kung Lao as canonical. Kung Lao's ending makes reference to this, stating that he was able to go back in time, stand in for the Great Kung Lao (to his agreement) and defeat Goro 500 years before Liu Kang, ending the rivalry before it started (but this rivalry between them could be friendly, after all, they are friends).