Space Nightmare is a vertical-scrolling shoot-'em-up with a low-colour palette and smooth animations. The player can select one of three different ships in an attempt to single-handedly repel an invasion of aliens bound on taking over Earth's copper deposits. The game adheres too the classic arcade shoot-'em-up formula: the player's ship picks up bonuses, weapon upgrades and extra lives along the way while blasting at waves of enemy ships and other targets. Each hit sustained from enemy fire will take away one "up" and also downgrade the player's weapon a notch, if any upgrades were present. There are no mid-level shops or other intricacies, but, for a change, Space Nightmare also includes horizontal-scrolling levels that take place in space.