Birth by Sleep is an action roleplaying game that introduces a gameplay aspect called the Command System, which allows players to customize a Command Deck with techniques and abilities that they can perform at will, called Deck Commands. Performing ordinary attacks and Commands fills a gauge displayed above the command deck that, when certain requirements are fulfilled, activates a Command Style that changes the player's basic attack command with the "Surge" command, which racks up powerful combos depending on what Command Style is activated. Filling the gauge with certain requirements a second time causes the character to change into an even higher level Command Style, which replaces the "Surge" command with the more powerful "Storm" command.

Kingdom Hearts Birth by Sleep begins in the Land of Departure, where three Keyblade wielders and close friends—Terra, Aqua, and Ventus (more commonly known as Ven)—train to become Keyblade Masters under Master Eraqus. To achieve this rank, Keyblade Apprentices must take the Mark of Mastery exam once they come of age. Terra and Aqua take this test together and in the first round Master Xehanort sabotages the exam, forcing Ventus to intervene. In the second round Terra and Aqua fight each other, but while Aqua passes the test, Terra is deemed unfit to become a Keyblade Master due to the abundant darkness in his heart.

Afterward, a group of mysterious creatures called the Unversed begin to surface in other worlds, and another Keyblade Master, Xehanort, disappears without a trace. Terra is sent to destroy the Unversed and find Master Xehanort, who had earlier encouraged him to embrace the darkness in his heart if he desires the strength to become a Keyblade master. Ven, meanwhile, is goaded into following Terra by Xehanort's mysterious apprentice Vanitas, against Eraqus's wishes. Aqua is dispatched by Eraqus to survey Terra and keep him from falling into darkness, as well as to bring Ventus back to the Land of Departure.