FBI Special Agent Saga Anderson and her partner Alex Casey are dispatched to the town of Bright Falls to investigate a series of ritualistic murders. They investigate the latest victim, the naked man, who is revealed as former FBI agent Robert Nightingale. It is believed he was murdered by a group calling themselves "The Cult of the Tree." In addition to Nightingale's corpse, Saga finds a mysterious manuscript page that seems to predict the future. While in the town, they encounter Sheriff Tim Breaker, who promises to assist their investigation, as well as waitress Rose Marigold, who recognises Saga and acts like Saga was a local of the area, despite this being her first visit to the town. Saga then performs an autopsy on Nightingale's corpse, but it suddenly reanimates and escapes the morgue after Breaker mysteriously vanishes.
Players play as Alan Wake or Saga Anderson in two separate single-player stories, which can be played in any order the player chooses; although the opening sequence and ending sequence of the game can only be played as Saga and as Alan, respectively. Wake and Anderson traverse environments and fight enemies using various firearms and a flashlight, the latter of which can be "focused" to render enemies vulnerable to firearm attacks. Focusing the flashlight drains its battery, and players need to strategically use a limited amount of batteries and ammunition in order to survive. When enemies are close, Alan or Saga can perform a dodge maneuver.