The gameplay attempts to resemble that of the traditional Soul Calibur games, but in 2D.

Soul Calibur Sword of Destiny takes place between the events of Soul Calibur 3 and 4. The wave of carnage that ravaged Europe has ended, but this has not meant a period of peace: Nightmare, a beast consumed by the evil of Soul Edge, and his followers had managed to reap enough souls to fulfill their goals, increasing the unholy power of the Edge sword. But the vortex of evil within this blade revealed Soul Calibur, a sacred sword that could counter the terrible weapon. After a terrible battle in which Soul Calibur was victorious, a vortex sucked in both swords, and the warrior Nightmare was split into two beings (Siegfried, wielder of Soul Calibur, and Nightmare, wielder of Soul Edge), thus being forgotten. However, despite being seemingly destroyed, the evil of Soul Edge left its seed in the world in the form of several fragments, which corrupted those who came into contact with them. Cervantes, seeking to regain this power, began searching for these pieces to return to his reign of terror in the Spanish lands, but this search led him to the return of Nightmare who maintained contact with the artifact's hilt, which allowed him to regain control of the Edge sword again. The knight Siegfried, sensing that Nightmare had returned with the complete Soul Edge, took Soul Calibur for himself. Induced by Elysium (the spirit of the Soul Calibur sword), he began a journey of self-penance to seal the evil within the Edge sword. Now, several warriors around the world, seeking power, whether to destroy or cultivate peace, pursue the illusion of controlling Soul Edge's destructive power or obtaining Soul Calibur's immense power.