The story of Puzzle Quest is based in the Warlords game universe. Players assume the role of a character with various statistics such as combat ability, morale, and magical affinity. A character's predisposition toward individual attributes and spells is determined by the selection of one of four professions at the start of the game. During play, the player takes on quests as part of the main storyline, as well as accepting side quests in order to gain items, experience and gold. Gold can be used to buy equipment that offers bonuses in combat, or it can be used to build up a citadel that unlocks additional content and customization for the character.
The game uses a simple map, and as players accept quests, new towns, cities, and other points of interest appear as available destinations. Each location is connected together by roads, and foes periodically appear between locations, blocking movement until they are defeated. Key quest locations are also marked on the map, and completing quests typically involves visiting such locations in order to defeat one or more opponents in one-on-one battles.
Combat in the title is conducted entirely via turn-based puzzle action similar to Bejeweled or Zoo Keeper. The player and the computer-controlled opponent take turns swapping the position of two horizontally or vertically adjacent tiles on a grid to make a row or column of at least 3 like tiles; these tiles are removed with various effects as listed below, and all tiles above them fall to fill in the spaces, with new tiles created at the top of the board. If, by this action, a new row or column of three or more like tiles is formed, this is also removed and the chain can continue indefinitely. An extremely long chain can earn the player additional bonuses. If either combatant can match four or more tiles in a line, that combatant will be given an extra turn and potentially additional bonuses. If no move to make a match of 3 is available, the board is reset for both combatants.
Tiles themselves correspond to certain effects when matched. Colored titles provide that color of mana for the combatant's spells and abilities, while skull tiles do direct damage to the opponent. Other tiles represent experience and gold for the player when matched. Additionally, wildcards can be matched with any of these tiles. The player-character's class, experience level, and equipment affect how much bonus mana or damage he or she gets for matching those tiles. Prior to a match, a combatant can cast a spell which he or she has enough mana for. Spells can do direct damage or may affect the board, such as removing all tiles of a specific type; once used, a spell has a cooldown period of a few turns before it can be used again. Combatants may have armor points, either from their equipment or gained through spells, which absorb damage before the combatant's hit points are reduced. Once either the player or computer opponent runs out of life, the battle is over. Most battles can be re-fought if the player loses, although only those which are part of the main quest need be completed in order to advance the game plot.
Following successful battle, the player is rewarded with experience points and gold. By raising the character's experience level, the player can distribute skill points to affect how the tile-matching combat plays out. Gold can be used to purchase equipment and spells at the in-game shops. The player can gain Companions during the game. Companions, like equipment, provide certain bonuses in combat, and also affect the storyline of the game. Between battles, a player can visit his or her citadel, a certain base which he or she can build up using gold and other treasures. This provides a forge to construct new equipment, a bestiary where the player can try to learn spells from captured opponents, and train mounts. Most of these activities require completing a mini-game variant of the tile-matching game.