Players control Spyro the Dragon as he fights against various enemies and obstacles using his flame breath, charge attack, and glide abilities. His health is indicated by the color of his dragonfly partner, Sparx, who can replenish his health by eating butterflies. Bottled butterflies will both completely restore Sparx's health and give Spyro an extra life. If Sparx eats enough butterflies, Spyro will receive an extra life. Butterflies can be acquired by flaming, charging, or head-bashing the various fodder scattered throughout the game.
The game is split up into three main homeworlds containing portals to various realms. In order to progress through the first two homeworlds, the player must acquire a talisman from each realm, which is awarded for reaching the end of the realm. Once enough talismans are collected, the player can face the boss of each homeworld. Each realm also contains a certain number of orbs, which can be earned by completing secondary tasks for particular NPCs, such as lighting a series of lamps or protecting characters from attacks. These orbs are required for opening some of the portals to certain realms, as well as progressing through the third homeworld. Gems gathered throughout the game are required to pay fees that Moneybags, a money hungry bear, charges in order to progress through the game. As well as opening portals or granting access to certain areas, Moneybags also teaches Spyro three brand new abilities over the course of the game. Swimming lets Spyro dive underwater to reach submerged treasure and hidden tunnels, climbing lets Spyro climb up certain surfaces, and the headbash lets Spyro perform an overhead smashing attack which can break rocks and certain cages. In addition, each realm has a power-up gate, activated after defeating a specific number of enemies in a realm, which grants Spyro a temporary super-ability. The power-up can grant invulnerability or the abilities to fly, supercharge, super flame, breathe ice, or super jump to reach high up areas.