The game is played entirely with the mouse. The mouse is used to move and interact with the environment as dreams have different objectives that are themed individually.
The player can choose what dream they can play with, which are SpongeBob, Patrick or Plankton's. Each character has two stages, the "Dream" and "Nightmare." The nightmare for each character is locked until the player finishes the "Dream" first.
The game is played with an overhead view, similar to real-time strategy games, and only uses the mouse's buttons, with the left mouse button to move or attack and the right one to show the hitbox of everyone on the screen. The gameplay changes slightly for each stage the player decides to go to. Each time the player gets defeated, they will respawn to a nearby checkpoint. Enemies defeated beforehand will not respawn.
SpongeBob's dream - The player has to complete a lap on a race course dotted with enemies, avoiding tires, oil cans, and ferocious cones. SpongeBob can shoot bubbles to attack enemies from a far range.
SpongeBob's nightmare - The player has to try to navigate and get out of the Jellyship, by sneaking past the Alien Jellyfish Guards so the player can get the net launcher from Gary, which allows the player to trap enemies for a short period of time and to find three keys to open the door and rescue SpongeBob's friends who are locked up in it.
Patrick's dream - The player has to defeat a certain number of evil door-to-door salesmen, dental hygienists, and personal trainers in Bikini Bottom using Patrick's tongue attack. Patrick can speed up by farting with the right mouse button. The game changes to a top-down shooter with Patrick shooting down enemy clowns with stars until he defeats a big clown boss.
Patrick's nightmare - After losing his superpowers, the player has to navigate Patrick through his house with a handheld vacuum instead to fend himself from lint worms and soap scum. Later in the level, Patrick has to defeat Dreaded Patrick with his vacuum.
Plankton's dream - The player has to destroy everything on their path, including enemies and various buildings within the time limit. Plankton can punch through buildings and also use his eye beam, which requires a cool-down time.
Plankton's nightmare - The player has to recruit smaller plankton minions to command. The minions are commanded by Plankton, who can only move and command, to fight for him while his way out of the sperm whale's belly. The minions can be knocked out after an enemy defeats them but they will get up after a short while.
During the middle of the day, SpongeBob, Patrick, and Plankton fall asleep in their respective homes. As they fall asleep, they started dreaming a bizarre set of dreams with each dream turning into a scary nightmare. The three main characters have to fight their way through each nightmare to make sure they won't end up scared when they wake up.
Each character has their own dreams and nightmares that can be played in any order. The nightmare happens after the respective character's dream.
SpongeBob's Dream - SpongeBob is fast asleep in bed, dreaming about going to Mrs. Puff's Boating School to make another attempt to take the exam, using a hot rod this time. He succeeds, much to the narrator's surprise, getting the "Highest Score EVER" special award from his teacher. In addition, he was entered by Mrs. Puff to the Bikini Bottom 5000 Drag Race.
While participating in the race with his Reef Rover, he was suddenly interrupted by evil sentient traffic cones and spiked wheels.
However, SpongeBob decides to face the enemies using his boat's bubble blaster while using nitro bubbles to smash through blockades on the race track. After defeating the enemies and finishing the race, SpongeBob was awarded as the hero and champion of the race.
SpongeBob's Nightmare - During the awarding ceremony, the jellyfish, which were revealed to be aliens, captured SpongeBob and all the people within the area for revenge and supremacy among the people.
Initially confused on the events that just occurred, as well as suddenly having an unusual outfit, SpongeBob decides to sneak past the jellyfish, in order to escape from the ship.
After following conveniently arrow-shaped mosses on the floor, SpongeBob finds Gary, who was also held captive by the jellyfish. Gary then gives SpongeBob a fully charged ionic net launcher that he took in a room of the ship. SpongeBob tells Gary to stay hiding in the same spot as he gets three keys to free his other friends that were also captured.
After getting all three keys, SpongeBob heads over to his friends. He also encounters the leader of the ship, which he successfully captures. He then uses a jet ski-shaped hovercraft to pull the spaceship to the ground. As SpongeBob laughs in joy, he suddenly crashes in front of his house, which made the real SpongeBob wake up from the nightmare. As he wakes up, SpongeBob spots an alien jellyfish swim by, which may be not a dream after all.
Patrick's Dream - Patrick is asleep on his armchair, as he starts dreaming about Dreaded Patrick assembling his forces of evildoers to wreak havoc within the city. This event awakens Patrick, which caused him to transform into his alter-ego, Starfishman. Starfishman then heads toward the city, defeating every henchmen of Dreaded Patrick, which are people that Patrick hates in real life, such as dentists, door-to-door salesmen, and personal trainers.
After clearing every henchmen on the city, Starfishman senses a horde of demoralized circus clowns on jetpacks, attacking within the airspace. The hero flies away to shoot down waves of enemy clowns. After defeating the boss clown, Starfishman chases down Dreaded Patrick and corners him inside the Krusty Krab. However, Dreaded Patrick reveals that the invasion was just staged to distract Starfishman to give him a chance to rip off the hero's source of power, his cape.
Patrick's Nightmare - Starfishman, now powerless, was suddenly teleported inside of an evil dungeon. He tries to find a way out with his only weapon being a portable vacuum cleaner that can suck anything. After slowly walking through the mysterious dungeon while defeating lint worms and soap scum, Starfishman finally encounters Dreaded Patrick, praising him on being able to survive through the dangerous dungeon. Using the chance, Starfishman asks the menace about what place did he trapped in. The villain answers by revealing to him that they're actually on Patrick's house. He originally planned to set up traps inside the house but he saw on how dangerously filthy the house is. The two started to engage in combat and the fight from the house up until they ended up in Jellyfish Fields at sunset, where Starfishman successfully knocks out the villain. The dream then ends, and Patrick presumably starts pretending to be Starfishman in his sleep, but accidentally trips while doing so.
Plankton's Dream - During a cloudy day, Plankton fell asleep after plotting for world domination. He started dreaming about building a machine called the "Enlargement Ionizer", which enlarges himself into gigantic proportions and starts to terrorize Bikini Bottom while shifting into the film noir effect.
Plankton plans to build his own empire by destroying the city first. He also destroys the military and air defense force of Bikini Bottom that tries to shoot him down. Along the way of his rampage is a giant monster resembling Mr. Krabs, called the "Krabzilla". After defeating the monster, Plankton proceeds to destroy the Krusty Krab and happily laughs off the destruction.
Plankton's Nightmare - Despite his overwhelming victory, Plankton was soon shrunken down and was eaten whole by a giant whale. As he tries to find his way out, he finds a group of smaller planktons who are willing to help Plankton due to his strong leadership, as well as their lack of intellect. Due to the smell, Plankton was to discern their location, which is the whale's stomach. Plankton commands the army of lesser planktons to follow him as he leads them to the whale's mouth to save themselves from being digested.
As Plankton and his group march on, he was able to recruit an army of lesser planktons who helped him on his way. After taking down a giant skitter, the group headed towards the mouth. Plankton commanded the army to do everything to make the whale sneeze them out. The army followed the command by stomping, kicking and punching the tongue of the whale. As the whale starts to sneeze, Plankton suddenly spots the secret formula tucked away somewhere on its tongue. Plankton tries to reach for the formula but was unfortunately blown away through the blowhole.
Fortunately, the formula book was blown away with him and he tried to read each of the contents. Just as he was about to read about the secret sauce, he wakes up, much to his dismay.
Each character has their own set of enemies to deal with in each dream or nightmare.
Evil Tires - They are common enemies in SpongeBob's good dream.
Major Treads - Bigger than the evil tires, major treads are tougher.
Monster Tires - Much bigger variations of major treads, there are only two encountered.
Oil Cans - These enemies shoot out oil.
Oil Drums - Bigger than the oil cans, oil drums are tougher.
Oil Vat - A giant oil can that acts like a mini-boss, best to keep distance and rapid fire to finish him.
Caution Cones - The player can't kill these enemies, but they can maneuver around them instead.
Jellyfish - There are two types of Alien Jellyfish. The pink ones and the big green ones, the pink ones are undefeatable unless SpongeBob has the net launcher. The net launcher has no effect on the big green jellyfish, however.
Door-to-door salesmen - These starfish will throw clothes at the player.
Dental hygienists - This starfish will throw toothpaste at the player.
Personal trainers - These starfish walk up to Patrick and attack him when they come in contact.
Dumbbell - A variation of personal trainers, they attack by tossing dumbbells. Try to dodge their attack and get closer to attack them, since they don't have an up-close attack.
Buff Star - A huge personal trainer enemy, basically do the same tactic as on personal trainers but with them having much more health.
Clowns - There are two clowns. One of them that flies around and shoot balls at the player and the other acts as a boss after the fifth swarm.
Soap Scum (unless Patrick has the Soap Box) - This enemy is only defeatable when Patrick has the soapbox.
Lint Worm - These are common enemies in Patrick's nightmare.
Plungers - Same as the caution cones, the play can only maneuver around them, one of them will be moving around so be extra cautious.
Dirty Clothes (Filthy Pile) - This pile of dirty clothes will shoot at Patrick.
Dreaded Patrick - Starfishman's arch-enemy. Keep shooting him and avoiding the dirt until he falls down and faints.
Buildings - They are common enemies in Plankton's good dream, and are also the only enemies who can't attack, but attack it a couple of times to destroy them.
Helicopters - These enemies can only be defeated by Plankton's ultra-dense ocular disintegration ray, they will fire projectiles at Plankton.
Houses - There are three houses: SpongeBob's, Squidward's, and Patrick's. They only take one hit like a building.
Krusty Krab - Same as the other buildings.
Krabzilla - A giant yellow Mr. Krabs with spiky claws, he will be found near the Krusty Krab, the best way to defeat him is with the eye laser, he acts as a boss in the level.
Tank - These enemies can shoot Plankton. Destroy them just by walking into them.
Barg 'N Mart - Same as the Krusty Krab and the other houses.
Skelefish - They are fishbones in the whale's mouth. Get the other Plankton to kill them along the way. There are smaller versions of them.
Bone Pile - If the player does not destroy the bone pile, it'll summon small skelefish. Kill it to prevent the enemies from appearing.
Ray - These are more powerful and faster versions of the skeleton fish, try to attack them as fast as possible.
Skitters - These slow crab-like creatures will attack with heavy damage, they also have a lot of health, so be cautious.
Giant Skitters - An enormous variation of Skitters that are way more powerful than the normal Skitters, there are two to encounter, it is best to ignore it, but they are more faster than smaller skitters.
Note: The * indicates the enemy the player cannot kill or get rid of.
This is the first PC "version" of a console SpongeBob game that has a different title.
Despite being named similar to its console counterpart, the game was released months earlier than Creature from the Krusty Krab.
Third-party database site SteamDB, includes the game on the list with an accompanying Steam header for the game despite the fact that there are no SpongeBob games that are released for Steam untilBattle for Bikini Bottom - Rehydrated.
This game has backwards compatibility.
It can be played on older computer units.
This was the last SpongeBob game to be developed by AWE Games.
In Patrick's dream, most of the enemies are starfish.
Larry the Lobster appears in Patrick's dream in the Downtown Bikini Bottom level but has no lines.
Unlike Creature from the Krusty Krab, all of the dreams and nightmares that happen in the game are actually the dreams of the three main characters rather than being the dream versions of the aforementioned characters inside of Gary's dream.