The goofy, but courageous knight Dirk the Daring is on a quest to save the pretty princess Daphne. The princess was kidnapped by the evil dragon Singe and imprisoned in a medieval castle owned by an even more evil wizard called Mordroc. Now, it's only up to Dirk to use his courage and his quick reflexes to overcome the traps in the castle, if he wants to save the princess and his skin.

Dragon's Lair 3D: Return to the Lair can be considered a re-imagining of the 1983 arcade game: gameplay-wise it deviates from it significantly, being a full-fledged action platformer with unrestricted character movement. Dirk has to battle enemies, jump across platforms and hazards, and solve a few puzzles on his way. Health and mana points can be upgraded over the course of the game. Dirk can also use a crossbow to combat enemies and solve some of the puzzles. Collecting Dragon Essences scattered through the castle grants him new powers.

The game features the familiar cartoon-like style of the original version (done with cel-shaded technique), as well as many familiar locations and boss enemies.