The world in Fable II is fully dynamic, interactive and mostly free roaming with no set quest path to take. Since the game takes place over a hero's lifetime, many things can change; Molyneux gave an example of a trade camp that the player could either help or destroy. Trading in such camps would increase their profit, resulting in a small town growing around them.
Additionally, every accessible property (those that can be entered by the player) in the world can be purchased (except for the Tattered Spire), and ownership of unique buildings can unlock further quests. In addition to purchasing and renting homes, businesses and stalls are now available for purchase. These businesses produce income for the player every 5 minutes, depending on the quality of the business, the economy level of the town, and the opinion of the shop owner for the player (a shopkeeper with a high opinion will work harder), and the rent or goods prices set by the player; this happens even while the Xbox 360 is turned off. Rent is also accumulated every 5 minutes. Also, if the player visits his own shops, the quality of their goods will improve, and improve the quality of the shop. Players are able to furnish the houses with furniture and other items available for sale. In addition, titles will be awarded for buying property; if one were to buy every building and piece of land in a town he/she may become the mayor of that town; owning more land leads to higher titles such as king/queen, and eventually Emperor of the entire land of Albion. Players can become more Pure by setting prices and rent low, or more Corrupt by increasing them.
The environment in Fable II features trees with branches and leaves that are individually animated according to their own physics, each tree having roughly 120,000 leaves. There are also around 15 million poppies in Albion.[6] There are both interactive and non-interactive cutscenes in the game.[7]According to Lionhead Studios, the non-interactive cutscenes consume less than five minutes of game time.
In the fully interactive cutscenes a player can use their expressions during the dialogue or even run away from the scene, thus skipping it; afterward the player can return to the cutscene location to start it again. If the player runs away from a cutscene which contains important information, the character will await the player's return.
The player's companion is a dog which the player befriends as a child. This dog follows the player almost all of the time during the game. The dog can learn tricks, fight enemies and find treasure, and lead the way to quest objectives (when required, though this is rare; typically the player is led to objectives via a sparkling gold "bread crumb" trail). It can also aid in combat situations by attacking downed enemies. The dog cannot be killed, but can become injured and ineffective, requiring healing by the player.
The appearance of their dog will also mirror the player's choices and changes colour depending on the player's alignments; if the player is neutral it will remain grey, being good will turn the dog's coat to golden and evil will turn it to black. There are no other animals in the game, save for neutral rabbits and birds, a fact commented on by one NPC who notices the oddness of carriages with no horses.
In the downloadable content "See the Future", it is possible to change the dog's breed with potions. The three choices are Dalmatian, Bloodhound and Husky.[8]