It is unknown who built the Lost Pyramid or when. All that is known is that it was buried underground to hide the treasure. However, a button was left behind a sealed door in another pyramid that was able to raise the pyramid from under the ground. Captain Plunder hired The Per'fessor to translate the sacred texts that gave instructions on how to open the door. The Stone Guardian then appeared and fought Sonic the Hedgehog and Knuckles the Echidna while the Sky Pirates crept into the pyramid.
Inside, Plunder activated a light switch, showing them the Lost Tomb to be filled with treasure. As they filled up their sacks, the lights began to fail and the Sandopolis ghosts were summoned. They chased the pirates out of the castle and left them empty-handed, the door shutting behind them. Trapped inside, Knuckles broke open a seal that caused sand to fill in from outside that would eventually return the pyramid below the island's surface. A secret exit allowed the heroes to escape to the Lava Reef Zone.
The pyramid was later raised once more when Nack the Weasel used a shrinking ray to remove all the sand inside the pyramid. He also used to steal the treasure inside. The Chaotix Crew followed and found themselves grappling with the ghosts, but were eventually able to defeat Nack. With Chaotix returning with Nack to the Special Zone, Knuckles was left to clean up the scattered treasure and return the sand to its former size.