Lo Wang has been working as a Shadow Warrior (a bodyguard and mercenary of sorts) for the powerful Zilla Corporation for years. But when he discovered the evil Zilla's plan to summon monsters from other dimensions and conquer the world, he left in disgust. Realizing that Lo Wang might jeopardize his plans, Zilla sends his assassins after him.

Shadow Warrior is a first-person shooter similar in style and gameplay to Duke Nukem 3D. The game set in a generic "Asialand", which looks like China and Japan conflated together. It features deliberately immature and politically incorrect humor, as well as a protagonist who delivers regular one-liners, commenting upon the situation at hand. Much of the humor is derived from over-the-top, stereotypical portrayals of Asian culture (e.g. scantily clad young women drawn in Japanese anime style).

The player has to complete several levels, fighting enemies and occasionally solving puzzles on the way. Though the game primarily focuses on exploration and combat, puzzle-solving plays a larger role than in most other contemporary shooters. There are also a few sequences that allow the player to drive vehicles, some of which have mounted weapons. Like Duke Nukem 3D, the game's environments are interactive, allowing the player to manipulate or destroy scenery and many objects, often revealing secret areas. On a technical side, the game introduces climbable ladders, true room-over-room situations, and voxels (instead of sprites) for weapons and inventory items.