Gameplay in Bahamut Lagoon is like that of a Tactical RPG, but with a variety of twists. Each character unit on the battle field represents a party of characters and is associated with a dragon unit. Character units are actually a party of 4 characters that can engage in combat through either a single command or series or a set of individual commands through a sub-battle system that looks and feels like a traditional turn based RPG (such as Final Fantasy).
The battle field combat is turn based in an I-Go-You-Go style. The player has a turn, followed by the enemy. The order of units is selected by the player, and all units must be issued a command for the turn to end.
Character units are selected and can be moved. They use either field abilities, attack, or issue a state to their respective dragons. When using a field ability the unit attacks as a group through a single command. This form of command is similar to other Tactical RPGs (such as Shining Force). When using the attack command, a sub battle screen appears showing the enemy party on the left and the player party on the right. Commands are then issued for each party member. After the player party acts, the enemy party also gets the chance to react with a series of commands for its own party. These battle sequences take only a single turn.
Dragons are partly autonomous, receiving only three commands which set their state of action. The player does not move them directly. They can be told to Come, Go, or Wait. The Come command keeps the dragon close to its associated character unit, attacking enemy units that are nearby. Go sends the dragon to attack at will. Wait retreats the dragon into a defensive position. If a dragon unit dies it impacts on its respective character units abilities.
Character parties and their associated dragons can be reconfigured to the players liking. Dragons can also be fed items outside of battle to improve their stats. Improvements in stats cause the Dragons to transform into new types of dragon.
Bahamut Lagoon takes place in a world called Orelus. It is made up of floating islands called Lagoons and home to Dragons. The major lagoons are watched over by a Holy Dragon, Bahamut is the Dragon who watches over the Kingdom of Kahna. However, when Kahna is conquered by the Granbelos Empire, Bahamut does not defend it, and as a result its princess is captured and sadness fills the skies of Orelus. The lead protagonist, Byuu, and his Dragon Squad set up a resistance. Their goal is to free the kidnapped princess of Kahna and remove the sadness from the skies. After recovering their missing Dragons, they set out to take back the flagship of Kahna, which they name Fahrnheit.
The Emperor of Granbelos, Sauzer, has acquired the power to communicate with the Holy Dragons. He seeks to take control of them and rule over all of Orelus. Princess Yoyo of Kahna also possesses the ability to communicate with the Dragons. Upon doing so, the Dragons are awakened and they both fall ill. However, not only do the Dragons awake, but a portal is also created to another dimension called Altair. Altair, ruled by the most powerful Dragon, Alexander, is the home of demons who begin to attack Orelus. Alexander seeks the power of the other Holy Dragons for himself.
Upon overthrowing Granbelos Empire, Sauzer dies of his illness. Before departing he reveals that he made a pact with the demons of Altair in order to gain the ability to communicate with the Holy Dragons. It is left up to Byuu, his comrades, and the Holy Dragons to venture to Altair to defeat Alexander and save Orelus.
The game was only released in Japan for the Super Famicon (SNES). It has never had an official English translation. However, an unofficial fan translation ROM patch by the translation group DeJap exists as of 2002. The translation has a reputation for its humor and rude language.