Xenon 2: Megablast is a vertically scrolling shoot 'em up[1]: 5  in which the player takes on the role of a starship pilot who must destroy five bombs planted throughout history by the villainous Xenites.[1]: 3  The player controls the Megablaster, a small battlecraft that can move in multiple directions, is equipped with a raygun as an offensive measure, and is shielded from enemy attacks and collisions for a temporary period.[1]: 5  The game is split into five scrolling levels ranging in theme from the Cambrian era to futuristic metallic spaceways. The levels are primarily inhabited by aggressive lifeforms that have been mutated by radiation emanating from the bombs planted at the end of each level.[1]: 6 
Attacks from these enemy characters will decrease the player's shield. If the shield is completely depleted, the ship will be destroyed by the next hit it sustains, and the player will lose a life.[1]: 5  Each level contains six "restart positions", from which the ship will respawn at the most recent position passed if a life is lost.[1]: 9  If all three lives are lost, the game ends prematurely.[1]: 5  The shield can also sustain damage if the ship is trapped in a corner of the scenery and is crushed as the screen continues to scroll. The player can reverse the direction of the scrolling to a limited extent by pulling back on their directional input when the ship is at the bottom of the screen. A boss character is found at the end of each level and requires a specific strategy to destroy. When the boss is defeated, the bomb within the level will defuse. The first level only features one boss character, while the other four feature another boss at the level's halfway point.[1]: 7 
Capsules can occasionally be found within the levels, and release one of a variety of collectible tokens when destroyed.[1]: 8  These tokens can augment the ship's weaponry or speed, restore a portion of the ship's shield, or allow the ship to dive into the background for a limited time.[1]: 10–12  Destroyed enemies leave behind currency known as Real Cash, the quantity and value of which depending on the size of the enemy. Real Cash can be used to buy and sell tokens at "Crispin's Swop Shop", which the player can access twice per level.[1]: 8  Xenon 2: Megablast is primarily single-player, but allows for two players to play intermittently.[1]: 4–5