The year is 2007, and Earth is recovering from a devastating nuclear war. Recently, the USA government has been attempting to promote peace negotiations with the countries of the Eastern Bloc. A Mark IV Cyber Commando, Sergeant Rex Power Colt, is sent to a remote island to investigate suspicious activities taking place there. Shortly thereafter he discovers that Colonel Sloan, the commander of the Omega Force and his former superior, has infused himself with the blood of mutant dragons roaming the island, acquiring tremendous powers as a result. Sloan's goal is to disrupt the peace talks by building his own army of rogue cyborgs. Aided by Sloan's assistant Dr. Darling, who has switched sides, Rex must liberate the island and foil the Colonel's maniacal plans.

Far Cry 3: Blood Dragon is a futuristic first-person shooter that takes place in a semi-humorous rendition of a post-apocalyptic future, utilizing stereotypical science fiction style of the 1980's. Described as an expansion pack to Far Cry 3, it is nevertheless a stand-alone game that does not require the original title to play. Its main campaign is noticeably shorter and its engine and most gameplay features are identical to the predecessor. The game combines first-person action with role-playing elements and open world gameplay with drivable vehicles.

Like the previous game, Blood Dragon allows free exploration of a vast island and contains role-playing elements such as side quests and gradual character building. Experience is awarded for killing enemies and completing missions. The amount of experience received varies depending on the player's choice of dealing with the enemies: for example, accurate headshots grant bonus experience. The player character gradually becomes stronger and more proficient in combat and stealth. Compared to the preceding game, character growth is more limited and linear, as the protagonist levels up automatically. There is also no crafting system and most of the arsenal is open to the player right away.

Completing side missions unlocks various weapon modifications. The island is home to several enemy garrisons, all of which can be liberated by the player. Liberating garrisons can be done in a number of ways, one of which includes deactivating their shields that prevent the titular blood dragons roaming the island from entering the garrison. A dragon then can be lured inside by throwing at him cyber hearts ripped out of enemies' chests, and the garrison can be liberated by letting the dragon kill its occupants. Liberating a garrison provides a fast travel point and unlocks a map that shows the locations of treasure chests and collectibles in its vicinity. Completing collectible sets bestows further bonuses on the player character.