The game centres around controlling the Overlord and an army of goblin-like minions simultaneously to traverse the 3D gameworld and defeat the corrupted heroes who slew the Overlord's predecessor.
There are four minion races, each represented by a colour and have different abilities. Browns are melee fighters, blues can revive defeated minions and swim, reds throw fireballs at enemies and survive fire attacks, and greens backstab enemies and can clear poisonous gas and plants. Minions are summoned from the minion pits found scattered throughout the game. The player needs to pay life-force, which can be gained by killing creatures, like sheep or large bugs. At the start of the game only five minions can be summoned at once, as the game progresses this increases to a maximum of fifty. In addition to controlling minions, the player can sacrifice them at altars of blood and magic to restore the Overlord's health or mana.
The player begins in an old ruined tower that has been plundered of its magical artefacts and acts as a central hub for the player. As the stolen artefacts are recovered, new rooms and spells become available for use, and the Overlord's maximum health and magic increase. The player can customize the tower with a variety of visual items. Armour and weapons can be purchased or improved in the forge. Most defeated enemy types appear as opponents in the dungeon, an arena where the Overlord can fight them again.
While the game assumes that the Overlord is evil, it also tracks how corrupt the Overlord is in accomplishing his goals. Slaughtering otherwise inoffensive townsfolk, stealing gold and other activities increases the corruption level, whereas acts of kindness reduce the level. The corruption level changes the way towns folk treat the Overlord and will also change his appearance, a system similar to both Fable and Black & White. As corruption increases, the Overlord's armour will become more devilish with horns protruding out of the back, shoulders, elbows and knees. The corruption level also determines which game ending the player receives and which high level spells they can cast.
The game offers several multiplayer modes. Slaughter, where two Overlords face each other in a head to head combat, with possibly hundreds of minions at once, Survival, where two Overlords team up against large armies of enemies, and final mode is Pillage, where two Overlords and their minions compete to see who can pillage and plunder the most gold in a selected amount of time. The Xbox 360 version provides voice chat over Xbox Live.