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The Three Dragon Story is a vertically scrolling shooter similar to Knightmare. The player controls a lone hero moving in all directions to avoid enemy fire and shooting back at enemies with the various weapons available, as the screen slowly scrolls forward. Different weapons can be collected by shooting at and revealing invisible boxes. These weapons include throwing daggers, magic-like projectiles, two-way fire, and others. Weapons can be switched at any time. Power-ups that enhance the strength of the weapon fill a special "power bar", which is drained by enemy attacks. The protagonist also has a health bar that can sustain a several hits before it is depleted. There are no extra lives or continues - if the hero dies, the player must start the game from the beginning.