In the land of Boletaria, the Old King Allant wakened the Old One, a terrible demon that was sealed away below the Nexus eons ago. Now a colourless fog is unleashing the demons and terrorizing mankind. Only one lone hero can save Boletaria from its doom.

Demon's Souls is an action role-playing game where the player can choose from a wide variety of starting classes, including hunters, knights, soldiers, priests and magicians. The objective is to proceed through five worlds and defeat the demon bosses at the end of each level. Killing enemies will give the player souls, the game's currency. These can be traded in for weapons, spells, miracles, items and equipment or to upgrade the player's stats at the Nexus, the world's central hub.

During combat, the player has to watch the protagonist's stamina bar, which decreases with physical movements like attacking, evading or blocking. Death does not end the game: once the hero dies he respawns in soul form. This means that his health is reduced, but he can do more damage against foes. Every time the protagonist dies he loses all the collected souls. However, these can be regained by touching the spot where the character lost his life.

The game features an online portion, where it is possible to observe other players playing the game in "alternate universes", running around the level as white phantoms. Places where players died are marked and can be viewed as a replay, to warn the player of imminent danger. It is also possible to leave messages about dangers like strong enemies or traps on the ground, which can be read by other players. With the use of special items, it is also possible to play cooperatively with other players or invade their worlds to kill them.