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Kutaro is a little boy taken away by the evil Moon Bear King. He must escape the king's castle and rescue his fellow little comrades with the help of a mysterious flying cat and a pair of magic scissors called 'Calibrus'. Transformed into a puppet by the evil king, Kutaro must play with his wooden head and the numerous replacement heads he will find on his way to help him out the castle.

Puppeteer is a side-scrolling platformer that can be played in both 2D and 3D. The puzzle-solving elements in the game are based around the various heads that can be picked up and up to three can be carried at a single time. Encounters with enemies and hazards cause Kutaro to lose his head and it then needs to be picked up quickly before it disappears. Extra lives are provided by collecting 100 moonsparkles.

Kutaro has a companion and both characters are controlled simultaneously with an analog stick for each one. The game supports two players where the second takes control of the companion. There are different companions in the game and they can examine objects, and pick up moonsparkles and heads. The game is presented as a puppet show with seven acts and three 'curtains' (levels) for each act.