One afternoon, three friends, Junior, Teddy and Ivy, enter a virtual game called Digimon Online - a game where digital monsters live. Soon soon there is a digital terrorist attack, trapping all players inside Digimon Online. The owners of Digimon Online, the MAGAMI Corporation, claim there is no major problem and it will be fixed soon. However, not all is as it seems as Junior, the main character, uncovers secret mysteries about the digimon, the game, and the corporation.

Digimon World 3 implements a free roam approach, and is not simply restricted to dungeons and mazes. Like other RPGs, Digimon World 3 has a turn-based battle system, and enemy digimon are fought by random encounters. During battle, it is one-on-one fighting, and thus you can only initially fight with just one digimon at a time. Digimon have many different attacks, skills, and digivolutions (the ability to evolve into a stronger digimon). The player gets to choose a pack of three digimon at the start, but through side-quests, is able to obtain all nine (plus one bonus digimon).