The game opens with Jareth talking to the player's character as if he or she was Sarah, searching the Labyrinth for Toby. However, the character is not specifically female, and the "brother" the player is searching for is also nondescript, allowing the player to imagine him/herself in the main role.

The play is similar to the original Legend of Zelda game, with an overhead view and an items menu accessible when the game is paused. (This menu features in-universe items collected by the player, such as Sarah's jewels, candles, books, and coins.)

The player's character can throw rocks at oncoming enemies, earning points. Weaker enemies (such as Fairies and small Goblins) are repelled with the hit of a rock; stronger foes (such as larger Goblins and Fireys) are stunned.

A clock in the upper left corner of the screen counts down from 13 hours. When a player is hurt by the attack of an enemy (either by contact or from magic orbs being shot at the player's character), minutes are taken off the clock which, when expired, ends gameplay.

Despite the technological limitations of the Famicom, the game is remarkably well adapted from the film. The player's character has many of the same pivotal encounters Sarah experienced: the player's character converses with the Worm and the Wiseman, and progresses through areas of the game in the same order that they appeared in the film. The game also parallels the difficulty in navigating the Labyrinth, as it can be confusing and players can easily get lost in the mazes.

Hearts can be found placed sporadically about the levels. These hearts are then assigned to either Hoggle, Ludo, or Sir Didymus. When enough hearts are found and delegated to one of these characters, the player may elect to play as that character.