Folklore is an action game with some RPG-style customizability. There are two main characters. One is a girl named Ellen who is seeking the truth about her past. The other is a man named Keats, a journalist for an occult magazine who is investigating a possible murder. The story is set in the present-day.

Ellen (led by a message from her dead mother) and Keats (after receiving a distressed phone call) are lured to an Irish village called Doolin, where it is rumoured that the living can meet the dead. In the course of the game, they travel to the netherworld and encounter faeries and monsters, or "Folk."

In battle, Ellen and Keats can absorb Folks' ids and gain new abilities for use in battle. This is usually done by timed movements of the motion-sensing controller.

Four folks can be mapped to controller buttons, making the play fast-paced like an action game, with a degree of customization. The player can choose to play either Keats' or Ellen's storyline. There are seven realms, all based on different notions of what the afterlife might be like.