The game, which largely follows the action RPG gameplay of previous games in the series, sees players alternate between the roles of Sora and Riku. Alternating between characters is done via the 'Drop' system. During gameplay, a Drop Gauge gradually depletes over time, though it can be replenished with items. When the gauge completely empties, control will switch to the other character, though players may also opt to drop manually at any time. Drop Points, which are earned by defeating enemies and completing optional objectives, can be spent on bonuses that can be used until the next time the character drops, such as a slower Drop Gauge or increased attack or defense. The game reuses the Command Deck system from Birth by Sleep, in which players can customize a deck filled with various actions, spells, and items that can be quickly selected. There are also several new elements added to the gameplay. Flowmotion allows players to move quickly about by performing actions such as bouncing off walls, grinding on rails and spinning around poles. Reality Shift is a system the player can use on certain objects or weakened opponents involving a touch-screen activated minigame unique to each world. These include dragging the screen to fling a target like a catapult, touching hidden words to take control of enemies, and playing a small rhythm-based game to cause fireworks to appear.
One of the key elements of Dream Drop Distance is the inclusion of the Dream Eaters. Whilst they generally serve as the main enemies of the game, up to three good Dream Eaters, known as Spirits, can be recruited per character to assist them in battle. Spirits can be created by combining Dream Fragments together with an item or spell, either via experimenting with combinations or using recipes found throughout the game. Characters can also link with Spirits to perform unique attacks. Along the way, the player can care for these Spirits by petting them, feeding them items, or playing mini-games with them, which can unlock new abilities for the Spirits.
The game takes place across multiple worlds based on Pinocchio, The Hunchback of Notre Dame, Tron: Legacy, Fantasia and The Three Musketeers, each having two different plots from the perspectives of Sora and Riku. These worlds need to be completed by both Sora and Riku in order to unlock new worlds and progress through the game. Upon visiting each world for the first time, each character must go through a Dive section, in which characters freefall down a tube and must clear a certain objective, such as obtaining a certain amount of points, defeating a certain amount of enemies in a time limit, or defeating a boss character. In this mode, Sora and Riku can attack opponents, slow down their descent, or dodge attacks. They can also pick up magic spells which give them a limited supply of magical attacks to use against enemies.
Outside of the main game, players can play an additional mode called Flick Rush, which can be played alone or with another player via wireless multiplayer. In this mode, players battle with a team of three Spirits and pit them against each other. Players fight against their opponent by flicking up cards from the touchscreen. Each card has a number value determining its attack strength, with multiple cards combining to increase the overall value. The player whose attack value is greater than their opponent's gets to attack with their Spirit. A slowly replenishing meter determines how many cards the player can send out at a time, and each Spirit has a limited amount of cards that can be replenished by swapping them out with another Spirit. The first player to eliminate all of their opponent's Spirits wins the game.