Basketball Challenge is a sports simulation similar to the publisher's previous game NFL Challenge. The game is based on college basketball and features real players of its time although the twenty included teams have made up names. The player can choose any two of the teams and play single matches either between two human players, against an AI opponent or have both teams being controlled by the computer.

The game is played by making selections from text menus while the court and the players' positions are viewed from a simple top down perspective where each player is represented by a number. Before the start of a match, the player can give instructions to the team. This includes picking offensive and defensive plays, tempo and lineup. Once the match has begun a text commentary describes what happens while the numbers move around on the court. When coaching the player can influence the match by changing tactics or substituting players during dead ball situations. It is also possible to yell out instructions to the team when the game is running.