Xenon 2: Megablast is a vertically scrolling space shooter where you must navigate through several levels filled with enemies. These levels are completed by defeating a level boss creature at the end of each stage. As you destroy groups of enemies, you receive cash rewards. You can also visit Colin's Bargain Basement to spend your money on upgrades for your ship, such as better weapons, speed boosts, and health enhancements. Some upgrades can be found during gameplay.
The game starts with an organic feel, but the second part features mechanical enemies. Certain sections of the game include maze-like areas with dead ends, which cause your spaceship to reverse direction when you hold down the down key continuously.