Klonoa and his friend Huepow have to save the dream world from an evil spirit named Ghadius from turning it into a world of nightmares. The game is similar to Pandemonium! in that it uses a 2.5D perspective, where the character moves on a 2D planes while the environment is rendered in 3D. Movement also circles around and sometimes shifts into to the background as well, similarly to games like Lomax.

Klonoa can hit enemies and grab them to either shoot other enemies/objects or to gain a burst of extra jump height, in addition to his short hover. Unique is also the extensive use of cutscenes and an engaging and fun story with various set pieces that together form an adventure for all ages. Each world also features boss fights that use the 2.5D perspective and keeps those encounters fresh.

The game had one sequel, released in 2001 called Klonoa 2: Lunatea's Veil. Both games were remastered with HD graphics and 60FPS as part of the Klonoa Phantasy Reverie Series which released 8th of July 2022.