Following the events of Bubble Bobble, Bubby and Bobby set out to defeat the "Dark Shadow" and rescue the Rainbow Islands. The Dark Shadow is the entity responsible for the events in Bubble Bobble. The game is set on a chain of ten islands, each one with a different theme. Each island provides four rounds of game-play, and once these are complete the player moves to the next island in the chain. In each round the player must get to the top before the sea level rises and kills them. The islands get progressively more difficult, with enemies moving much faster on the later ones. These are depicted on a map screen before the start of each island.
Players can release rainbows that act as weapons, makeshift platforms, and item collectors. Slinging rainbows damages any enemies and acquires any items that the rainbows come in contact with. When jumped upon, they fall down, beating any enemies below them, and releasing a damage field above them. Collecting power-ups increases the player's speed, the speed of the rainbows and how many are spawned. If players take too long in a level, water will start to rise up from the bottom of the stage, and will kill the player character if it rises above his head.
Like Bubble Bobble before it, the game has multiple endings. To get the "True and Happy" ending the player must find and complete the three secret islands (although most consumer versions of the game completely lack the secret islands because of budget constraints). These islands are not visible until all 7 big diamonds are collected. To get a big diamond, the player must collect seven different-colored small diamonds on the island and finish the round. The small diamonds are found by destroying enemies by dropping a rainbow on them from above or destroying them with various special items. After collecting the small diamonds, a word "NICE" appears. If the small diamonds are collected in the correct order, the player will get to a secret room at the end of each island, which contains a permanent power up. The color of the small diamonds depends on where the fallen enemies land, so the player can somewhat determine which diamond colors will drop.
The scoring system also has secrets, which allow vastly higher scores to be achieved than normal.