Goddess of the Evil Blade is a direct sequel to the first Sword Dancer. The story continues to chronicle the adventures of the "sword dancer" Hien and his mentor, the warrior Tetsuta. They have succeeded in rescuing the "white dragon sorceress" Setsuna from the clutches of the demons. However, greater challenges await the three. Setsuna's life might be in danger, and the watchful eye of the evil Black Dragon continues to follow the heroes. The adherents of the benevolent White Dragon have to prepare for the decisive battle against the forces of evil...

The game plays very similarly to its predecessor. The overall structure corresponds to that of a traditional Japanese RPG: the player navigates the heroes through top-down environments, buying supplies in town, advancing the narrative in a linear way, and fighting enemies to gain experience and level up automatically. Like in the first game, the battles are action sequences that take place in small side-scrolling areas, similarly to fighting games. However, unlike in the predecessor, the enemies are visibly walking on the screen.

The fighting game element is more developed in the second game; two additional modes (beside the main story mode) are accessible from the main menu: "monster attack" and "vs. mode". Monster attack mode allows the player to select one of the game's heroes and fight increasingly stronger monsters; "vs. mode" features two-player competition.