Players control a man named Vincent who begins having strange nightmares after his girlfriend, Katherine, begins to talk about marriage and commitment. This matter becomes more complicated for him when he meets a gorgeous girl named Catherine and the nightmares get more and more intense. The main story mode, Golden Playhouse, follows the story between Daytime and Nightmare scenarios. During the daytime, Vincent will converse with his friends as well as try to handle his relationships with Catherine and Katherine. Most of this time takes place in the Stray Sheep bar where Vincent can save and send text messages from his mobile phone, talk to customers, order drinks, play a minigame titled Rapunzel or listen to a jukebox containing tracks from other Atlus games such as the Persona series.
The main gameplay takes place in the Nightmare stages. In a nightmarish dreamworld inhabited by other men, who are represented as sheep, Vincent must climb up giant staircases that are slowly collapsing underneath him and safely reach the top. To accomplish this, Vincent must push, pull and climb blocks as quickly as possible while avoiding various traps such as spikes and ice. Climbing up steps in quick succession increases a score multiplier, and at the end of the level, players are given an award based on their score. Each stage is split up into numerous areas, culminating in a boss stage in which a nightmarish creature also attempts to kill Vincent. Items found throughout the levels include pillows which give extra lives, block items that can be placed anywhere in the level and lightning that can destroy sheep which block Vincent's path. There are also certain attributes Vincent can get depending on what he drinks during the day. Vincent will die if he falls off the bottom of the level, gets caught by a trap or is killed by a boss, with the game ending if Vincent runs out of retry pillows. In between action stages, Vincent can interact with the other sheep, save his game, learn techniques or spend coins on special items. When playing on easy and normal difficulty, players can push the Select/Back button to correct a single block move.
Throughout the game, the choices the player makes during certain sections of the game will affect the development of Vincent's character and the route the story takes place. These can occur in several ways, such as how Vincent types out a text message to one of the girls, or how he responds to certain questions. The game will feature multiple endings based on the route Vincent takes, and has over twenty hours of gameplay. The game also features a non-linear morality system much more subtle than most other games. Instead of choosing Vincent's reaction at major plot points, the morality meter is affected by responses to seemingly insignificant questions posed by non-player characters, which in turn dictates how Vincent reacts to unexpected situations. Babel Mode features four large stages playable with up to two players, while Vs Colosseum features two players simultaneously playing a stage in order to reach the top first.