Set in an alternate world resembling the 1960s, Deathloop takes place over the course of a single repeating day on the subarctic island of Blackreef. The multiplayer portion is optional and players can prevent others from taking on the role of Julianna in their game, instead leaving this to a computer-controlled opponent to try to stop Colt. When the player takes this role, they will enter a random player's game and may interfere with their play. The game features a multiplayer aspect in which the player can alternatively take the role of Julianna, an agent tasked to protect the time loop and take out Colt. The routines of the people in a particular district vary depending on what time of day the player enters it, and the player's actions in one district can affect the routines in the others. Each day is divided into four periods (Morning, Noon, Afternoon, and Evening), and moving between the island's four districts (Updaam, Karl's Bay, Fristad Rock, and The Complex) causes time to advance. The time loop in Deathloop is not strictly timed and is aimed to give players more time and freedom to take out these eight targets in one loop. They must avoid or take out guards, learn the patterns of Colt's targets, and to figure out the right order to eliminate said targets using guns, melee attacks, or other environmental means. The player uses a combination of stealth, parkour, attack skills, guns, gadgets, and powers as in Arkane's previous games Dishonored and Prey to move about the game world. Should Colt die before taking out the eight targets, he will wake back up at the start of the loop.

In Deathloop, the player takes on the role of Colt, an assassin stuck in a time loop who has been tasked to take out eight targets called Visionaries across the island of Blackreef before midnight, as leaving even one alive will cause the time loop to reset and undo his work. In Deathloop, Colt's inner thoughts sometimes appear as text in the game.

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