The plot is set in medieval Japan decades after the events of Onimusha 3: Demon Siege and focuses on Soki, a warrior who possesses Oni powers.

Soki is on a quest to stop Hideyoshi Toyotomi, who has unified Japan in league with his demonic army of Genma after the death of Nobunaga by the hands of Samanosuke, and he also joins forces with several allies who all share the same goal in stopping the demons and Hideyoshi plans of wanting to conquer the world.

While the game retains the action elements from the previous Onimusha, it offers a more varied amount of different attacks, weapons, and the option of going back to previous stage to unlock new content (although there are points in the game where the players can no longer return to certain area due to the plot moving to a different area of Japan).

The game also introduces a 3D camera (although there are small areas that still retain the fixed camera of older Onimusha games) as well as the ability to continuously fight alongside AI controlled characters who move depending on the player's orders (the player can switch between characters with a push of a button).

For example, Jubei can take advantage of her low size to walk through weak floors or crawl through holes, Ohatsu can grapple and swing across areas as well as blow up certain objects with bombs, Roberto can push heavy objects or punch open locked metal doors, and Tenkai can interact with spirits and gain items of useful information from them.

Additionally, a shop system allows the player to purchase weapons that they can upgrade, along with valuable supplies such as medicine and accessories that convey a variety of benefits.

The game takes place fifteen years after the defeat of Nobunaga Oda at the end of Onimusha 3: Demon Siege.

[5] Nobunaga's former vassal, Tokichiro Kinoshita takes the name of Hideyoshi Toyotomi as he unites Japan and brings an end to the Sengoku Period, but the peace comes to an end when the "Omen Star" appears in the sky: several natural disasters occur as Hideyoshi sends his armies to attack the mainland Asia as the Genma resurface.

Joining forces with Soki to infiltrate where the trees are being prepared for travel to Kyoto, Jubei is revealed to have been sent by her grandfather to assassinate their clan's traitor Munenori Yagyū.

As Jubei fails to defeat Munenori, Soki encounters his childhood friend Ohatsu and attempts to convince her that Hideyoshi is evil by revealing the "cheery trees" to be Genma Trees: structures created from human bodies that produce Genma Insects which control whoever ingests them.

The group proceed to the castle of Hideyoshi's retainer Mitsunari Ishida, facing the lord's brainwashed warrior Sakon Shima as they save Roberto Frois, a Christian missionary from Spain who wants to take revenge on his guardian Luís Fróis for allying himself with the Genma.

Soki and Ohatsu manage to save Jubei and Roberto as they learn that Hideyoshi is only a puppet used by the Genma Triumvirate: Claudius who is symbiosis with Mitsunari, Rosencrantz who took over Fróis's body, and Ophelia.

Rejoined by Tenkai as they head to the other Dark Stone, Soki's group encounter Lady Yodo, Ohatsu's sister and Hideyoshi's royal concubine.

After defeating Ophelia, the group arrives to the Genma laboratory where they confront Claudius as he stops Roberto from attempting to destroy the remaining Dark Stone.

A restored Sakon arrives at the last second to purge Claudius from Mitsunari's body, the Genma assuming his true form before being slain and causing an explosion that obliterates Rosencrantz with Fróis finally at peace.

Though the group saves Yodo and Soki makes peace with his dying father, the group finds that Munenori stole the Genma Seed during the commotion and resurrects the God of Light: the Genma Lord Fortinbras, who was previously resurrected by Nobunaga before being killed by Samanosuke decades earlier.

Refusing to bow before the omnipotent foe despite the odds, Soki manages to kill Fortinbras after a hard fought battle.

Soki's allies continue on with their lives: after some grieving time, Ohatsu ultimately decides to marry into another family while tending to her nephew and Yodo.

[6] To avoid having issues with the camera, the lock on function was made more clear while the joystick's right analogue allows to change enemy targets.

[6] When developing Shadow of Rome, producer Yoshinori Ono and Inafune realized they could innovate Onimusha by giving it more action elements.

[12] This generated early speculations, most notably the Tenkai's true identity being Samanosuke Akechi, the returning hero from previous games.

[10] Despite the focus on action rather than the setting, the team did not reduce the plot's length and instead they gave it twice the content of storyline than Demon Siege.

"Startin'" and "Rainy Day" by Japanese entertainer Ayumi Hamasaki are featured as the opening and ending themes for the game respectively.

[24] Capcom VP of Strategic Planning and Business Development Christian Svensson referred to Demon Siege and Dawn of Dreams as less successful games than the first two Onimusha titles.

[25] In 2012, GamesRadar listed Dawn of Dreams as one of the titles they wished to be re-released in a HD collection since they noted the original game did not achieve good popularity as result of the next generation consoles having been released in the same period.

[21][22] The unique of the controllable characters were noted for giving the player the idea of returning to previous stages and unlock new items.

[22] During 2007, Keiji Inafune commented that as Dawn of Dreams lacked characters based on real actors he felt there was entertainment value missing.

Inafune also talked about making a follow-up to Dawn of Dreams but he was more interested in developing Mega Man Legends 3, a game that never got realized.