The game is played entirely with the mouse. The mouse is used to move and interact with the environment as dream 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 right mouse button 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 3 keys to open the door and rescue the player'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 cooldown 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 be knocked out after an enemy defeats them but they will get up after a short while.
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 cannot kill these enemies, try to 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 soap box.
Lint Worm - These are common enemies in Patrick's nightmare.
Plungers - Same as the caution cones, 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 - The ruler of Garbageland. Keep shooting him and avoiding the dirt until he falls down and faints.
Buildings - They are common enemies in Plankton's good dream, they can't attack, but attack it a couple 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.
Some covers of the game fuses the title with the console counterpart, making the name as Creature from the Krusty Krab: Nighty Nightmare.
Despite being named similar to its console counterpart, the game was released months earlier than the Creature from the Krusty Krab.
This game have backwards compatibility.
This can be played on older computer units.
This was the last SpongeBob game to be developed by AWE Games.
In Patrick's good 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 are actually dreams of the main three characters rather than being the dreams of dream versions of the main characters inside Gary's dream.