The third installment in the Dragon Ball Z: Budokai series begins another tournament of champions where only one fighter can prevail. As one of the characters from the Dragon Ball Z animated series, you can master an all-new fighting system that lets you teleport, juggle opponents, fly, and attack in a variety of ways. As you progress through the tournament, you can unlock up to 40 bonus characters from the DBZ universe. You can also post and retrieve character profiles from the Internet.

The story mode in Budokai 3 takes place on a world map called Dragon Universe. This mode consists of 11 playable characters traveling around Earth or Namek during the four main sagas of Dragon Ball Z: Saiyan Saga, Frieza Saga, Cell Saga, and Majin Buu Saga, while collecting items such as money, capsules, Dragon Balls or unlocking other characters for use in the other game modes. The various characters are each unlocked by completing a required task within Dragon Universe (for example, Dr. Gero is unlocked by defeating Dr. Gero with Yamcha in the Androids Saga).

The Dragon Universe has a high level of replayability due to events in the game potentially changing from playthrough-to-playthrough. For example, in Goku's first playthrough the majority of the story proceeds as it does according to the anime. However, in the following playthroughs, certain choices can include Goku's fight with Frieza changing into a fight with Cooler instead. These choices can even lead to events such as fighting Broly and Omega Shenron after fighting Super Buu. With eleven characters available for play in Story Mode, and various choices available for each character, Dragon Universe has significantly more replay value than previous Budokai games.