Set in the fictional world of Arkose, the player takes the role as Stinger, whose town has just been destroyed as a result a mysterious plague that is spreading quickly across the land.

In traditional RPG fashion, gameplay consists of exploring towns and dungeons, collecting equipment and items, and interacting with non-player characters in environments featuring 3D polygonal models set on 2D pre-rendered backgrounds.

Random, turn-based battles take place in fully-3D environments, where the player can execute various attacks and spells against enemies, gain experience points, and increase characters' attributes.

Development of Shadow Madness began with ex-Square employees who remained in Redmond, Washington when its North American division moved to Los Angeles.

The group, called Big Rain, was led by Ted Woolsey, a translator responsible for localizing Square's prominent Super Nintendo Entertainment System (SNES) RPGs.

Reviewers for Shadow Madness largely panned the graphics and gameplay but made positive comments regarding its plot, script, and musical score.

Conception of Shadow Madness began with Big Rain, a small group of employees of the North American branch of Japanese developer Square, located in Redmond, Washington.

[6] Woolsey served as Vice President of Internal Development for Big Rain and acted as a designer, executive producer, and one of several script writers for Shadow Madness.

[6][10] Big Rain eventually merged with the newly established Crave Entertainment, a Seattle-based company which bought the publishing rights to Shadow Madness from ASCII.

[6][14][15] He claimed that the purpose of Shadow Madness was "to tell a great story" and did refer to the commercial and critical success of Final Fantasy VII as proof that players of the time were interested in darker, more mature storylines than previous Japanese RPGs that had made their way to Western territories.

[6] As such, the text in Shadow Madness was aimed more towards teenagers and young adults than towards children and was written to make players empathetic to the characters' situations.

"[6] Similarly, Woolsey explained how this approach to storytelling would still use the more traditional RPG paradigm of a hero's journey to obtain power and eventually defeat a malevolent force.

"[14] To help present the storyline, the design team chose to develop Shadow Madness on the PlayStation because of the platform's ability to display non-interactive FMV cutscenes.

[8] This team was led by art director Annabella Serra, who previously worked at Industrial Light & Magic and helped create the CGI visual effects in the film Terminator 2: Judgment Day.

To give these backgrounds a cinematic feel, the team employed various filmmaking skills such as camera control, field-of-view manipulation, and the use of overlays for parallax effects.

[20] With a projected North American launch in April, customers who preordered Shadow Madness from Electronics Boutique, Software Etc., and Babbages received a demo disc of the game.

[22] The release for Shadow Madness was pushed back to its final, North American launch date of May 25, 1999 to allow the developer to further test and amend its gameplay.