The story opens with a flashback or dream sequence where a man transforms into a dragon. After the short prologue level the game's title screen appears again displaying the Blue or Golden Dragon mode depending on the player's actions during the prologue. The game continues from there with the main character transforming into a dragon and setting out to rescue a young woman and several magical girls, fairies and female elemental deities, all of which grant him a small power-up to help him with his journey.
Dragon Spirit: The New Legend plays identically to its progenitor, the original Dragon Spirit. The player controls a dragon as it travels across a vertical-scrolling screen, shooting down enemies in the air and on the ground. As was typical of shoot-em-ups of the era, the player can locate power-ups to make themselves more powerful.
Glowing/Flashing enemies drop colored orbs that change the color, number of heads, projectile and other properties of the main character. However one level of attack, dragon head or other effect will be lost every time the player takes damage.
- Blue Dragon: Default mode. Single fire projectile and bomb.
- Gold Dragon: Double health. (Easy mode only)
- White Dragon: Spread shot projectile.
- Pink Dragon: Rapid fire.
- Green Dragon: Piercing projectiles.
Unlocking Easy/Gold Dragon mode:
If the player dies on the prologue/first level against the boss the games story and level configuration will change and the main character will instead transform into a Golden Dragon with double the health and increased damage. This mode is much shorter and generally easier than the Normal/Blue dragon mode and has a funnier ending to accompany the decreased difficulty.
Differences Between Arcade/TG-16 Version and NES Version
- The sprite for the player's dragon is smaller, which makes avoiding enemy projectiles easier. There are also power-ups that decrease its size even further.
- The game features a different power-up system, allowing the dragon to change color to reflect the changes rather than simply growing more heads.
- The hidden underground sections are mostly scrapped.
- More cutscenes, including ones that appear after each stage and featured a rescued damsel in distress.
- The golden dragon "easy mode", unlocked if the player fails the relatively easy prologue mission.