Set in a retro-futuristic version of 1985, three years before the events of the first Ninja Gaiden (NES), the player controls Ryu Hayabusa, who must save New York City from the forces of Emperor Garuda, a servant of Jaquio.

Garuda's minions include the cyborg "Spider", kickboxer Gregory and his manager Jack, former military commander Colonel Allen, and the Japanese nobleman Whokisai (風鬼斎, Fūkisai).

Ninja Gaiden Shadow features simplified play mechanics compared to those used in the NES trilogy.

While Ryu cannot stick to or climb walls like in the NES games, he can hang onto railings and move underneath them like in Ninja Gaiden III: The Ancient Ship of Doom, and use both his sword attack and the Fire Wheel art while hanging onto railings.

Like in the NES versions, Ryu can find health potions, fire wheel stocks, and extra lives by destroying item containers.