This game is a vertical danmaku shooting game, where two characters engage in danmaku gameplay within individual and separate play areas (aka. split-screen). Upon meeting certain conditions, players are able to unleash a variety of character-specific Spell Attacks upon their opponents in an attempt to whittle down their remaining health points.

In Story Mode, the player will face nine opponents, each more capable than the previous. Phantasmagoria of Dim.Dream also features a Match Play Mode where the player may face off against AI opponents or compete against other players, as well as watch AI vs. AI matches.

While enjoying a quiet morning walk, the local shrine maiden Reimu Hakurei stumbles across some curious ruins a short distance from the Hakurei Shrine's gateway. As only one person is allowed into the ruins - and will be well-rewarded for doing so - seven characters engage in a big battle.

When the winner enters the ruins, however, they find Chiyuri Kitashirakawa and Yumemi Okazaki, residents of the outside world who have come to Gensokyo in their Probability Space Hypervessel. Their motives turn out to be less than acceptable for the heroine.