Folklore is an action role-playing game where players control characters in a third-person view to explore their surroundings and engage in combat.

When in this state, characters are unable to engage in combat or use their abilities and are limited to exploring and interacting with the village's inhabitants.

Basic attack techniques are performed using folk; creatures and spirits that, when defeated, can be absorbed for use by the player.

When a folk is near defeat, its spirit will glow red, allowing players to absorb it by locking onto it and performing shaking and pulling motions with the Sixaxis to reel in its energy.

In the present day, two people are drawn to the Irish seaside village of Doolin; Ellen, a university student with no memory of her childhood who receives a letter from her deceased mother Ingrid, and Keats, editor of the struggling occult magazine Unknown Realms, who receives a phone call from a woman who says that Faerys are attacking her.

On the night of Samhain, Ellen and Keats enter the Netherworld, the realm of the dead, through portals and gain power over monsters called the Folk.

During her adventure, Ellen learns that when she was a child, she lived in Doolin under the name Cecilia, with her family sharing the same lineage as Livane.

Suzette is revealed to be the current culprit, having sought to stop Ellen from learning the truth about her past after seeing Ingrid's spirit.

In the Netherworld Core, Ellen remembers that Livane told her of the place's power and that she had used her blood to make a wish for people to cherish life, creating Scarecrow.

Ryan Clements of IGN was particularly impressed with the game's style over the actual technical graphics engine, noting that "Folklore's sheer visual beauty comes more from the stellar art direction and execution of the artistic design than the amount of processing power it requires," helped further by the soundtrack described as "poignant and intrinsically atmospheric.

GameSpy found that "what makes the enormous library of monsters and moves work so well is that each is most useful in a particular situation"[11] and while GameTrailers also praised the feature finding that "switching folk in and out of your arsenal is easy thanks to well-organized menus," it also criticized brief loading times between shifting in and out of the menus that "puts a damper on the game’s flow.

"[12] Eurogamer on the other hand felt that the basic level design was "pretty standard dungeon crawling," if not "bland" at times.

"[5][19] While the narrative was considered a strong point, with GameZone (who gave it nine out of ten) calling it "compelling," the method of telling much of the story in graphic-novel style still cutscenes however received a less than positive response.

"[10] Another issue found in this method was the lack of voice-work outside of the full CGI cutscenes with GamesRadar+ (in-house) finding it to hinder the delivery of the overall story.