Forza Horizon 3 is the third game in the Forza Horizon arcade spin-offs of the Forza Motorsport racing simulation games. This edition it is set in Australia and as before it is centered around a Horizon racing festival. Locations include the coastal hills of Byron Bay, the modern Surfers Paradise in Queensland, but also long stretches of desert and mountains providing more opportunities for off-road racing. The player does not only participate in this edition, but also has a hand in the organization now. Participating in races opens up new events and is rewarded with fans. When a new expansion becomes available the player can choose where to set up the hub. New events can then be created and the player determines which cars to allow, the time of day and conditions, which radio stations to sign up and so on. Races can be customized in design and name with the option to share creations with other players as event blueprints. This time a custom character can also be created as an avatar.

Many types of races from earlier Forza Horizon return as well as street races along with the usual championships, circuit races and exhibition races. Convoy races are a new type based on the feature to form convoys. This is done by honking the horn at Drivatars, AI racers based on the performances of other players, to recruit them and have them earn credits for you. Showcase events return, with spectacular races using vehicles like sports cars, ATVs and trucks in different challenges. There are 350 cars in total and they are unlocked gradually and bought with credits. There are also Bucket List challenges to complete, based on a fixed difficulty level. As usual there is also open world racing without any restrictions. This can be done to visit the different locations, challenge other racers, earn experience through driving, locate hidden cars or destroy the many fast travel discount signs. Items of interest are revealed through a certain driving radius or they can all be unlocked by buying a treasure map. The Promo photo mode returns and there are now tasks to take and share photos. Next to credits as a basic currency, perks can be unlocked. Abilities can be upgraded in three categories, for elements as a festival organizer or as a racer. A first for the Horizon series is the introduction of the main Forza Motorsport auction house where customized cars can be bought and sold. It also provides access to Horizon Edition cars with special XP and credit multiplier stat boosts that otherwise only can be won at a wheel spin when leveling up.

With the second Festival expansion online multiplayer is unlocked and it is cross-platform for up to twelve players. New for this version is the introduction of cooperative races for up to four players. Players join each other games to race together or help complete each other's campaign tasks. It is played in the game of the host and even though there are some voting features, it is always the host who initiates races bringing the players into the race regardless of their position in the game world. Bucket List challenges can be completed this way too. With the fifth Festival expansion the clubs from Horizon 2 are unlocked, as guilds providing credit bonuses and leaderboards. The game integrates support for Microsoft's Groove Music music streaming subscription service as an option next to the regular music tracks.