UFO: Alien Invasion is set in the year 2084, and has the player defending the Earth from the attacking alien forces. There is a squad and base management metagame, with the main gameplay being tactical, turn-based strategy, taking a great deal of influence from the X-COM PC games.
The player takes control of PHALANX, the agency assigned to take care of the alien threat, conducting alien research, maintaining international relations and building weapons and various other combat items in what is referred to as Geoscape mode. The combat is referred to as Tactical mode, and involves navigating an armed squad on a map, saving civilians and combatting aliens.
In Geoscape mode, the game is about base management and strategy. The player manages the activities and finances of PHALANX, controlling bases, installations, aircraft and squads of armed-response troops. They will also research new technologies and use their results in battle against the aliens, as well as launching interceptor aircraft to shoot down UFOs and dispatching dropships in response to alien activity across the globe.
Geoscape mode employs time buttons to control the passage of time, automatically pausing whenever there's an important message to see. Research will progress and items will be produced as time passes.
In Tactical mode, the game is about taking command of the team in various missions to combat the alien threat. The same soldiers which have been managed and equipped in Geoscape mode will be employed here. Civilians and other bystanders may be found during the mission, being targeted and executed by the aliens.
Tactical mode uses a turn-based system, where the player's team and the aliens take turns to make moves. During a turn the player can order troops to move around, fire their weapons, throw grenades or use other equipment. Each soldier gets a certain number of Time Units (TUs), representing the total time they have to act during the current turn. All actions in Tactical mode require Time Units to perform. Once a soldier is out of Time Units, they can't do anything more until the next turn.
The game also includes a multiplayer mode, which can be played over LAN or an internet connection. Multiplayer mode can have two players play as either the aliens or the humans and fight one another, or up to 6 players can join co-operatively for 3 teams per side.