The sequel to Dungeon Keeper, Dungeon Keeper 2 carries over many gameplay aspects, and adds new ones. Like the original, Dungeon Keeper 2 places the player in the role of a malignant overlord bent on world domination. The player controls the world with a hand, performing actions such as moving creatures around the map, casting spells, and interacting with specific items. All the underground lands in the kingdom must be conquered to recover the portal gems. The kingdom itself takes the form of a large table containing a 3D map where the player selects where to attack from the highlighted regions. There are twenty main levels in the campaign. Some levels have multiple versions with differing methods of attack, allowing the player to choose the method and sub-region.
Generally, the player starts out with a Dungeon Heart and some Imps. The Dungeon Heart has the same purpose as the original game: it serves as the dungeon's life force. If destroyed, the player loses. In Dungeon Keeper 2, the heart has additional functions: regenerating mana (used to cast spells), doubling as a gold-storage area, producing Imps, and sending certain creatures to investigate threats it detects. Gold is the currency used to construct rooms, traps, and doors, and pay minions. Gold is obtained primarily by digging gold and gem seams, the latter providing an unlimited supply. This is performed by the Imps, the main workforce of the dungeon, who dig and claim tiles for the player to control. Another main task Imps perform is the fortification of walls adjacent to tiles owned by the player, although this no longer makes them impenetrable to enemies, but merely makes digging take longer.
The primary rooms include the Lair, Hatchery, Training Room, Library, and the Treasury. These have the same purpose as the first game: they function as a resting place, feeding place, training area, research area, and gold storage area respectively. The only major difference is that the Training Room can only train creatures up to experience level four. Further experience can only be gained through real combat, such as fighting in the new Combat Pit, where creatures fight against one another. The higher a creature's experience level, the stronger and more powerful they become. The highest experience level is level ten, and creatures cannot achieve levels nine or ten via the Training Room or Combat Pit.
Other rooms include the casino, where creatures gamble for either pleasure or to be exploited for gold, the Workshop, where traps and doors are produced, the torture chamber, where creatures are tortured. Traps include the Sentry trap, which shoots nearby enemy creatures, the Fear trap, which scares enemies away, and the Alarm trap, which alerts its owner if it detect enemy creatures nearby. Doors block enemies while still allowing its owner's creatures passage. They come in various forms, such as Wooden, Braced, Secret, and Magic. Secret doors imitate walls, and Magic doors defend themselves by shooting enemy creatures. Bridges connect areas and facilitate transport over water and lava tiles, the latter harming most creatures and burning Wooden Bridges. Stone Bridges are immune.
Creatures are attracted via Portals. Which ones come depend on the dungeon's composition. Each has its own abilities (such as spells they can cast), expertise, and job preferences. Creatures include Bile Demons, Warlocks, and Salamanders. Like the first game, creatures can be slapped with the hand to make them work harder, at the cost of their health. Certain creatures, such as Vampires and Skeletons cannot be attracted via Portals. They are obtained by their corpse decomposing in a Graveyard, and dying in captivity respectively. Certain sacrifices in the Temple, a room where creatures pray, also yield the acquisition of certain creatures. Creatures frequently enter combat (each follow one of four combat strategies) against creatures belonging to enemy keepers, or heroic forces defending the realm. Heroes enter the level via Hero Gates. The heroics forces are composed of different units to keepers: heroes include Wizards, Giants, and Guards. Most creatures have a heroic counterpart: for example, the Wizard is the counterpart of the Warlock. Heroes and rival keepers' creatures can be converted to the player's cause in the torture chamber after being captured and imprisoned. Creatures dislike their heroic counterparts, and their company may make them angry, which can lead to rebellions. Rebelling creatures either leave the dungeon, or defect to another keeper or the heroes, and may take other creatures too. Other things that can annoy creatures and cause rebellions include lack of food, not getting paid (creatures require payment on a regular basis), and being slapped.
Spells are cast using mana, not gold as in the first game. Spells include healing creatures, creating Imps, and summoning all creatures to a particular location. There are two grades of each spell, upgraded in the Library, the higher grade version being more powerful. For example, an upgraded Create Imp spell summons a level four Imp, whereas the normal version summons a level one Imp. As with the first game, the player can possess a creature and interact with the world from its perspective using its abilities. A special spell is the ability to summon Horny to assist the player for a short period. In the Campaign mode, it requires the assembling of the talisman, pieces of which are obtained through the discovery of bonus levels. Mana vaults may be scattered across certain levels; these may be claimed to increase mana generation. Other magical items are special items that provide a specific benefit to the player. These include healing all creatures, revealing the map, and locating a hidden level. There are five hidden levels based on mini games such as golf, bowling, and duck shooting.