[2] Set in an alternate history 1999, the game takes place inside a parody of the early Internet and its culture that users visit in their sleep called Hypnospace.

[3] The player assumes the role of an "Enforcer" for the fictional company Merchantsoft—creator of Hypnospace—and seeks to police illegal content, copyright violations, viruses, and cyberbullying by users on the service.

Hypnospace Outlaw utilizes an interface based on that of a typical graphical interface for a desktop operating system, similar to the likes of Windows 9x, with the player using a fictional in-game "web browser" called Hypnospace Explorer, akin to the massively popular Internet Explorer.

Hypnospace is a technology created by the in-universe company Merchantsoft, that allows users to browse an intranet while they sleep by using a HypnOS headband.

[23] According to PC Gamer, the game is reminiscent of when the internet was more like a cool underground club than a widespread hell from which there is no escape.