Dragon Spirit is a vertically scrolling shoot-em-up which consists of nine stages. Players fly around and destroy everything in their path. Much like in Xevious, action takes place on two planes, both in the sky (where the dragon is flying) and on the ground. The dragon has two different kind of attacks: fire that shoots up the screen, and fire that drops to hit a place on the ground in front of the dragon. Enemies exist both in the air and on the ground, and some can fly up from the ground to the sky.
Players can pick up power-ups, or upgrades, that will help them in their fight. Upgrades can include extra heads on the dragon, health, faster shots, and more. At the end of each stage is a boss that needs to be defeated. Having good upgrades that are not lost from being hit before reaching the bosses will help.