500 years ago King Winder had sealed the evil Demon Zakdos within a casket, thus ending the dark war. The great wizard Colin pledged that he and his descendants would build and protect a temple around Zakdos' prison. However, as a thief enters the temple and breaks the casket, Zakdos is set free and murders all that are left of the clan of Colin except for a young boy named Mute. To make things worse, the Sword of Hope, that has sealed away an evil dragon, is also stolen. The player takes control of Prince Theo who, with the help of Mute and other characters, must stop Zakdos and retrieve the Sword of Hope before the dragon awakens.

The main difference between The Sword of Hope II and its predecessor is the fact that you have control over a party of up to three characters rather than controlling only prince Theo. Apart from that, both games play very similar. The world is seen from a first person perspective and your party can be moved by selecting an arrow that points in the desired direction. Commands such as "look", "open", "hit" etc. can be chosen from a menu to explore and manipulate the game-world, talk to NPCs or solve puzzles. When encountering enemies, you enter a turn-based battle mode in which you can attack, use items and magic or try to escape.