Set after the events of Kingdom Hearts Re:coded, the game focuses on Sora and Riku's Mark of Mastery exam in which they have to protect parallel worlds in preparation of the return of Master Xehanort. Besides controlling the two playable characters across a single scenario, the player is able to recruit creatures known as Dream Eaters able to assist them in fights.
The Square Enix staff decided to develop Dream Drop Distance after being impressed by the quality from Nintendo 3DS. Taking advantage of the console's functions, they increased the action elements from the series based on the system previously seen in Kingdom Hearts Birth by Sleep. Additionally, both the gameplay and the plot are meant to give a glimpse about how the following title in the series, Kingdom Hearts III, will be like. The game has been well received in Japan, selling over 300,000 units as of May 2012.
This game was later remade and released in HD on the Playstation 4 known as Kingdom Hearts Dream Drop Distance HD that was released as part of Kingdom Hearts HD II.8 Final Chapter Prologue.
The game, which largely follows the action RPG gameplay of previous games in the series, sees players alternate between the roles of Sora and Riku. Alternating between characters revolves around the 'Drop' system. During gameplay, a Drop Gauge gradually depletes over time, which can be replenished with items, but dwindles quicker under certain conditions, such as being attacked by sleep spells. When the gauge completely empties, control will switch to the other character, though players may also opt to drop manually at any time. Drop Points, which are earned by defeating enemies and completing optional objectives, can be spent on bonuses that can be used by the next until their next drop, such as a slower Drop Gauge or increased attack or defense, with leftover Drop Points converted to Munny. The game reuses the Command Deck system from Birth by Sleep, in which players can customize a deck filled with various actions, spells and items that can be quickly selected. There are also various new elements added to the gameplay. Flowmotion allows players to move quickly about by performing actions such as bouncing off walls, grinding on rails and spinning around poles. Whilst performing these actions, indicated by a pink aura surrounding the character, the player can perform various types of attack moves. Reality Shift is a system the player can use on certain objects or weakened opponents by dragging down on the touchscreen when prompted. Each Reality Shift is a touch-screen activated minigame unique to each world, each with its own control method and effect. These include dragging the screen to fling a target like a catapult, touching hidden words to take control of enemies and playing a small rhythm-based game to cause fireworks to appear. The game is also compatible with the Circle Pad Pro, which allows for additional camera control.
One of the key elements of Dream Drop Distance are the Dream Eaters. Whilst they generally serve as the main enemies of the game, good Dream Eaters, known as Spirits, can be recruited to assist the characters in battle. Spirits can be created by combining various Dream Fragments together with an item or spell, either via experimenting with combinations or using recipes found throughout the game. More effective Spirits can be created by using more Dream Fragments in their recipe. Each character can have a party of three Spirits, two of which are active in battle and can be switched out with the inactive member via the touchscreen. As they fight against enemies alongside the player, a link gauge builds which, when full, allows the player to link with a Spirit, or with two if both of their link gauges are full. For Sora, this provides a unique attack such as bouncing on top of enemies or spinning a large mace, whilst Riku merges with them to augment his fighting ability, gaining enhancements such as flight or strength. Along the way, the player can care for these Spirits by petting them, feeding them various items or playing various minigames with them. Along with increasing their experience and stats by fighting and playing minigames, Spirits also earn Link Points which are used for the Ability Link system. In this system, players spend Link Points to open up paths and unlock various enhancements and new spells. Some paths require that the player link with a Spirit a certain number of times, or raise it to a certain level. Players can also use an AR card included with the game to play with their Spirits.
The game takes place across various worlds based on Pinocchio, The Hunchback of Notre Dame, Tron Legacy, Fantasia and Mickey, Doanld & Goofy: The Three Musketeers, each having two different plots from the perspectives of Sora and Riku. These worlds need to be completed by both Sora and Riku in order to unlock new worlds and progress through the game. Upon visiting each world for the first time, each character must go through a Dive section, in which characters freefall down a tube and must clear a certain objective, such as obtaining a certain amount of points, defeating a certain amount of enemies in a time limit or defeating a boss character. In this mode, Sora and Riku can attack locked on opponents, slow down their descent or dodge attacks. They can also pick up magic spells which give them a limited supply of magical attacks to use against enemies. If the player runs out of health or fails the objective, they will have to play the level again before they can advance to the world. Players earn a rank based on their performance, with bonus items earned for earning a Gold rank.
Outside of the main game, players can play an additional mode called Flick Rush, which can be played alone or with another player via wireless multiplayer. In this mode, players battle with a team of three Spirits and pit them against each other. Players fight against their opponent by flicking up cards from the touchscreen. Each card has a number value determining its attack strength, with multiple cards combining to increase the overall value. The player whose attack value is greater than their opponent's gets to attack with their Spirit. If the values are equal, a quick slot machine minigame is played to determine whose attack goes through. A slowly replenishing meter determines how many cards the player can send out at a time, and each Spirit has a limited amount of cards that can be replenished by swapping them out with another Spirit. The first player to eliminate all of their opponent's Spirits wins the game.
- Dream Drop Distance is a continuation of the events shown in the epilogue of Kingdom Hearts Re:coded. The game features a total of seven playable worlds, most of them set in a "world submerged in sleep", with all the Disney-based worlds introduced being entirely new, including: La Cité des Cloches from: The Hunchback of Notre Dame; The Grid from: Tron: Legacy; Prankster's Paradise from: Pinocchio; Country of the Musketeers from: Mickey, Donald, Goofy: The Three Musketeers; and Symphony of Sorcery from: Fantasia. The other two playable worlds are Traverse Town and The World That Never Was, while the worlds Twilight Town, Radiant Garden, Disney Castle, Mysterious Tower and Destiny Islands appear in cutscenes.
- The game features Sora and Riku as the two main characters of the game, taking part in a test to improve their skills with their weapon, the Keyblade. The two are depicted during gameplay as their younger selves shown in the original game while also being given new clothes; their older selves from Kingdom Hearts II also appear during cutscenes, and Sora in this incarnation is briefly playable during the end credits. A younger incarnation of Xehanort, first introduced as the optional "Unknown" boss from the North American and European releases of Kingdom Hearts Birth by Sleep, returns and serves as the game's primary antagonist together with his two revived former selves, Ansem and Xemnas. Several former members of Xemnas' Organization XIII, including Lea and some of Ansem the Wise's apprentices, return after being restored to their human forms.
Like previous games, Dream Drop Distance features various Disney characters, including Mickey Mouse, who is seen in the game in three different incarnations—his original characterization in the Kingdom Hearts series as the king of Disney Castle; a musketeer as featured in Mickey, Donald, Goofy: The Three Musketeers; and the young apprentice of Yen Sid shown in Fantasia. Donald Duck and Goofy make similar appearances as well. Characters hailing from their respective worlds remain in their worlds and play a small role in the main story, while Maleficent and Pete reprise their roles as antagonists, and Yen Sid as a supporting character. Unlike the other major installments, which feature an extensive cast of Final Fantasy characters, only a single Moogle appears from the franchise. Dream Drop Distance instead features cameo appearances of Neku Sakuraba, Joshua, Shiki, Beat and Rhyme from The World Ends with You, another game owned by Square Enix with characters designed by Tetsuya Nomura, marking the first time that non-Disney, non-Final Fantasy characters have appeared in the series.
The game introduces a new type of creature called Dream Eaters, which come in two varieties—"Nightmares", which eat good dreams and create nightmares, and serve as enemies similar to the Heartless, Nobodies, and Unversed from previous games; and "Spirits", which eat nightmares and create good dreams, and also act as Sora and Riku's party members.
- Sora, having learned of Terra, Ventus and Aqua from King Mickey's letter, undertakes another quest to save them with Riku joining him. However, learning of Master Xehanort and his eventual return, Yen Sid puts Sora and Riku through a Mark of Mastery exam in order for them to become full-fledged Keyblade Masters and counter the returning threat. As part of this trial, the two are sent to worlds previously destroyed by the Heartless that have since been restored, though now in a state of "deep sleep" that disconnects them from the other worlds. These worlds are plagued by Dream Eaters—creatures born from darkness that seek out the sleeping worlds' Keyholes. Sora and Riku's given task is to reawaken the sleeping worlds by unlocking the seven Keyholes they find there and then return to the realm of light, creating benevolent "Spirit" Dream Eaters to guide them and battle the malevolent "Nightmare" Dream Eaters, after which they will attain new powers and be deemed Keyblade Masters.
Once they awaken in the first sleeping world, Sora and Riku find themselves each in a version of Traverse Town separate yet influencing the other's journey in the other sleeping worlds. During the exam, Sora and Riku cross paths with their old enemies Xemnas and Ansem, respectively, who are accompanied by a mysterious youth who tries unnerving Sora and Riku by playing on their weaknesses (Sora's gullibility and Riku's regret), but the two ignore them and continue their test. The youth implies he and a group have plans for them.
Once all the sleeping worlds are restored, Sora finds himself in the World That Never Was instead of the Realm of Light, where he encounters Xigbar and learns of Organization XIII's true purpose—to serve as vessels for Master Xehanort to place pieces of his heart inside, thereby transforming them into clones of Xehanort. After an intense battle with Xemnas, Sora is forced into a comatose state by the mysterious youth, revealed to be Master Xehanort in his youth. Though his heart is swallowed by darkness, Sora is protected by Ventus' suit of armor residing within him. Riku goes to rescue Sora, only to be confronted by Ansem, who reveals that until now, Riku has been traveling within Sora's dreams like a Spirit Dream Eater. The two battle and Riku prevails, entering the true World That Never Was. Making his way to the castle, joined by Mickey once he and Yen Sid realized Xehanort's meddling, Riku confronts and defeats the young Xehanort. After the battle, the revived Master Xehanort unveils a new Organization composed of himself, his vessels, and incarnations of himself throughout time. From there, Xehanort reveals his plans to pit his Thirteen Seekers of Darkness against the Seven Guardians of Light, in scheme to recreate the χ-blade. Master Xehanort tries to turn Sora into his last needed vessel, but Sora is rescued by Lea—the revived human form of the original Organization's Axel—after which, when Donald and Goofy got involved, Xehanort and his other vessels return to their individual points in time yet will meet again when the time comes.
Sora's body is brought back to Yen Sid's tower, where Riku enters his body and releases Sora's heart from Ventus' armor, now possessed by a Nightmare. Riku then arrives at a digital version of the Destiny Islands, where Roxas, Ventus and Xion ask deep, personal questions; a copy of Ansem the Wise reveals that they were guardians and answering their questions awoke Sora. Riku receives data Ansem left in Sora's heart that may help Sora find those who are lost or no longer exist. Upon returning to the real world, Riku is declared a Keyblade Master by Yen Sid for braving the Realm of Sleep a second time to awaken Sora. Afterward, Lea then reveals that he has become a Keyblade Wielder. Undaunted by his failure, Sora congratulates Riku and embarks on a new journey by himself.