Unlike the first game, Dig Dug II takes place on an island with an overhead view. The goal is simple: to kill all the enemies on the round. There are two types of enemies; Pookas (the round red monsters with goggles) only have the power to kill a player by touching him, but Fygars (the dragons) have the power to kill a player either by touching him or horizontally breathing fire to burn him.
In this game, Taizo Hori (the player's character) is armed with two weapons. One is the pump from the original Dig Dug, which is used to inflate enemies until they bust. The other is a jackhammer, which can be used at "fault lines" on the map to create faults in the ground. If both ends of a system of faults reach the water, the ground surrounded by them will sink into the ocean, killing all creatures on it, including Taizo himself. The points earned from this depend on how many enemies are killed at once. Once three pieces of land have been cut off an island, a bonus vegetable will appear somewhere on what remains of the island, which can be eaten for extra points. After the thirty-first round, the rounds will be identical to the first sixteen rounds before it. When only one, two or (on later rounds) three enemies remain on the island, the enemies will eventually head for the edge of the island and jump into the water, killing themselves and the player points are lost.