As the story goes, three years have passed since this game's prequel. Now the Knight Arthur must fight against the true king of the Demon World, Lucifer, who has taken many souls including that of Arthur's beloved Princess Prin Prin.

The gameplay for Ghouls n' Ghosts is eerily similar to that of Ghosts 'n Goblins. The player controls the knight Arthur, who must advance through a series of spooky levels and defeat a number of undead and demonic creatures in his quest to restore souls stolen by Lucifer, including the soul of his bride, Princess Guinevere. Along the way, Arthur can pick up a variety of weapons and armor to help him in his quest.

It is the sequel to Ghosts'n Goblins and the second game in the Ghosts'n Goblins series.