The game is set in the same universe and shares characters and storyline with Puyo Puyo puzzle games. Unlike Puyo Puyo, Madō Monogatari is a Japanese-style RPG. You play Arle, a five-year old apprentice magician. She is attending a special kindergarten, and it is time for the Final Exam. At the same time, Arle receives a mysterious letter that tells her that if she finds eight magical gems and takes them to the Wizard Mountain, she'll be granted one wish. Arle decides to search for the gems which are scattered all over the world, and to overcome all the obstacles with her great magic power!

The game features random enemy encounters and turn-based combat, which takes place on a side-view screen (Arle to the left, the enemies to the right). You can't perform physical attacks at all, and your only way of harming enemies is through magic. During the game, you learn a variety of magic spells, which can be upgraded later. In battles you can't see your own and the enemies' hit points, and have to act according to your intuition.