Set in an alternate world resembling the 1960s, Deathloop takes place over the course of a single repeating day on the subarctic island of Blackreef. First charted in 1931, Blackreef was originally home to a small fishing settlement and a military base where experiments were conducted on local temporal anomalies. It is now owned by the AEON Program, founded by scientist Egor Serling to exploit the island's unique properties to gain immortality by living in an infinite time loop. Serling attracted eight other eccentric and talented individuals to his cause, the Visionaries, and scores of young, fanatical followers called Eternalists dedicated to serving them. Thanks to the time loop, the members of the AEON Program are able to hold a never-ending party where they can do anything they desire without fear of consequences, since the loop resets at midnight and restores everyone to their original state with no memories of the previous day. Disrupting the natural flow of the loop are two of the Visionaries: Colt Vahn and Julianna Blake.
The player uses a combination of stealth, parkour, attack skills, guns, gadgets, and powers as in Arkane's previous games Dishonored and Prey to move about the game world. They must avoid or take out guards, learn the patterns of Colt's targets, and figure out the right order to eliminate said targets using guns, melee attacks, or other environmental means. The time loop in Deathloop is not strictly timed and is aimed to give players more time and freedom to take out these eight targets in one loop. Each day is divided into four periods (Morning, Noon, Afternoon, and Evening), and moving between the island's four districts (Updaam, Karl's Bay, Fristad Rock, and The Complex) causes time to advance. The routines of the people in a particular district vary depending on what time of day the player enters it, and the player's actions in one district can affect the routines in the others.