In the game, players take part in illegal street races that focus on different styles of races, utilizing a variety of licensed real-world cars (available at the time of the game's development and release) that can be upgraded and customized with new parts, while contending with the involvement of the police in their efforts to impede the player. Racing events featured in the game include the series' standard of circuit, point-to-point, and checkpoint races, alongside the return of Police Pursuit events featured in Most Wanted and Carbon. In addition, Undercover includes new events such as "Outrun" - players must overtake a rival and stay ahead of them for a period of time - and "Highway Battle" - similar to Carbon's "Duel" and Underground 2's "Outrun" event, players attempt to stay ahead of a rival on a highway, battling against both them and local traffic, winning instantly if they pull far ahead and losing for the exact opposite - with its game modes consisting of Career, Single Event, and Multiplayer; both the PlayStation 2 and Wii editions also feature a fourth mode, Challenge Series, which operates similar in function as in Most Wanted and Carbon.
In Career mode, players take on the role of an undercover police officer seeking to break up a syndicate operating within the underground street race world. Like Most Wanted, players achieve this by completing both Racing Events and Pursuit events - the majority of events in this mode include the opportunity to "dominate" them by completing them faster than a specified time record for domination. In Undercover, progress in the story involves completing events that not only earn money, but also experience (or Wheelman Rep) and a special performance bonus - these bonuses either improve the player's driving abilities with all cars or provide other bonuses to the player's playthrough (i.e. an increase in race earnings). Earning enough experience levels up the player's Wheelman level, unlocking a larger performance bonus, new cars and upgrade parts, as well additional events including Jobs - special story-based missions in which the player must complete a specific task such as taking down a criminal's car. Police pursuits in this mode function like in previous editions, though the player's Wheelman level directly impacts how aggressive the police are when in pursuit of the player; the higher the level, the more tactics and vehicle types used in the pursuit.