Shadows of the Damned is a third-person shooter starring Mexican demon hunter Garcia Hotspur. His girlfriend Paula is kidnapped by Fleming, Lord of the Demons, and despite his inability to stop him at first, he follows him into the underworld to retrieve her. Garcia is aided by his buddy Johnson, a skull that can take several forms. It can be used as a torch for melee assaults but can also convert into a handgun, shotgun, or automatic rifle. Each of the three gun variants can be upgraded further by collecting blue diamonds dropped by bosses. Red gems can also be used to improve other powers and health. Alcohol can also be used to improve one’s health.
The environment puzzles and gameplay are heavily reliant on darkness. Garcia can only stay in gloomy places until his health deteriorates. This can be averted by shooting and flaming goat heads, letting off fireworks, or destroying the demons responsible for spreading the darkness. A specific light bullet is required for these events. Garcia meets Colonel and Christopher, a half-human, half-demon who works as a salesperson to buy products.
Certain levels feature different gameplay and look like mini-games, such as a 2D side-scrolling shooter with a completely different art design. The action is frequently exaggerated, and the dialogue is often amusing.