With Dance Factory you can create a choreographed routine for any CD in your collection. Using a spectral analysis system, the game will generate a step routine for each song that is average length. Dance Factory comes with five licensed tracks ranging from Tim MacGraw's "I Like It, I Love It" to the Pussycat Dolls tribute to home wreckers in "Don't Cha." The game comes with three dance difficulties such as easy, normal, and pro flavors, and the object is to hit the arrows on the dance mat at the correct time. As you hit the arrows, you will be informed if your step was bad timing, pretty good, or perfect. Increasing your accuracy unlocks bonus combos, and by filling the rank meter you can increase your score and change the animated visuals in the background.

Dance Factory includes five modes of play to entertain and exercise your body and brain. "Normal" mode has you dancing through one song while endurance mode challenges you to dance through an entire album. "Fitness" mode does not keep score, but counts calories that are lost as you boogie to the beat. "Record" mode allows you to save your custom dance routines for later use, and "EyeToy Camera" mode lets you see your movements and also adds two extra steps that you execute by using your hands. "Creature" mode will access bebop beasts that are hiding in music CDs everywhere. The creatures dance in the background as you cut a rug, and credits earned can be used to accessorize your new friend with sunglasses, jewelry, portable radios, and more. Challenge your friends to a den dance-off with a multiplayer option for up to 16 jivers.