ModNation Racers is a mix of the kart racing aspect of Mario Kart and the customization of LittleBigPlanet. The player starts out as a up and comer by the name of T.A.G. in the MRC (ModNation Racing Championship) series with his mother as a sponsor and a washed-out racer for a crew chief, meeting various interesting characters, both good and bad, through his ballooning career. The initial race gets the player acquainted with the controls and some aspects of the game including weapons such as rockets, sonic weapons, lightning weapons and boost power-ups. These weapons can be picked up by item pods scattered throughout the track and each weapon has three levels which starts out at level one and will upgrade for each item pod picked up. After the initial race, the player will be directed to the ModSpot, the central hub for MNR for players to get together.

At the ModSpot the player is introduced to the creation aspect of the game, using the creation station the player can modify their racers and karts. The player can unlock more items through the career mode by winning matches and completing certain challenges such as taking down three opponents, activate three traps, etc. They can also pick up tokens scattered on each track (five tokens for each track in total) and using them at a vending machine and like a slot machine, picking either 1 token, 2 tokens or 5 tokens and randomly getting an item depending upon the tokens used.

Players can also create their own tracks using various tools to sculpt the landscape to their liking and create their ultimate dream track. The players can share their creations with the world by publishing them, using a share center they can upload their created racers, karts and tracks and likewise download other players creations as well. Also at the ModSpot the player can view the Top Mod and Top Karts of the week, see who is in the current room, view to players of the week, enter the creation studios and even set up races with friends on official tracks or custom tracks by players.