In a 1993 interview with the game's director/story plan/graphic designer Toru Yoshida published in several shorter pre-release magazines, he was asked how is the game connected to the previous games of the series? He responded:

"It’s a direct continuation of the first two games. PSIII was like a collection of side-stories, but with PSIV, we’re returning to the main storyline, with PSI and PSII forming the historical backdrop. I wanted to make one more game where you get to explore the whole solar system and travel from planet to planet.

When our team made PSII, we were stretched pretty thin, and we couldn’t include all that we had imagined. We felt that leaving the story at PSII, therefore, would have been a real waste, and that’s how the idea for PSIV got started.

Also, PSII’s battle animation system still stands out today, I think. It allowed for really great visual presentation, and again, we thought it would be a huge waste to not revisit it. But PSII and PSIII also had a lot of flaws, and we wanted to fix all that and make a game which players would consider the definitive Phantasy Star. So in that sense, we also saw PSIV as a sort of remake of the best elements of the series."
Contributed by ProtoSnake