Diddy's Kong Quest starts where the first game left off, in an area known as Gangplank Galleon. After this first world, the player reaches K. Rool's island, called Crocodile Isle, where the rest of the game takes place.

In order to progress through the game, players must beat stages by reaching the finish without losing both characters. The stages are divided into worlds, each one normally containing a boss fight at the end which must be beaten in order to move onto the next world.

In comparison with the original Donkey Kong Country, the game contains many new features. These include a plethora of hidden bonus stages with collectible tokens rewarded for completing, more diversity in level design and level settings, an unlockable "Lost World" with extra levels, and the ability to transform into various animals (the first game included some of these animals, but the characters normally rode them, being able to transform into them only in bonus stages). There was also a greater difference between the two player characters, as Dixie can use her hair to float after jumps or attack enemies. A portion of the game's theme now involves sailing and pirates, as exemplified in many enemies sporting a pirate fashion and the seaside locations in some levels, whereas the previous game featured a jungle theme. While Diddy's Kong Quest introduced new features such as these, it also abandoned a few from the original. For example, the steel barrel was removed, eliminating the ability to roll on barrels, and the ability to find hidden items in the ground was removed. However, some of these removed features were brought back in Donkey Kong Country 3. As a promotion for the game after release Nintendo Power ran a contest for the fastest time in which to beat the game, and get all 102% of the game completed, the official winner had a time of 2 hours and 9 minutes.