Puppets, robotic automatons designed for labor and security tasks, were invented in the city of Krat thanks to the discovery of a revolutionary power source called Ergo underneath it. Powered by Ergo, they soon became ubiquitous throughout the city. Foremost among puppet inventors are the wealthy industrialist Lorenzini Venigni and the legendary Geppetto, who created Pinocchio. In order to ensure that puppets would not be a threat, they were bound to the Grand Covenant, a set of built-in directives which forbid them from lying or attacking humans. Puppets have their own language, which consists of blurred English text that becomes visible during boss fights against enemy puppets.
Lies of P is played from a third-person perspective. The player controls the humanoid Pinocchio and travels on foot through the city of Krat, exploring the environment and fighting various biomechanical enemies. Pinocchio uses an arsenal of weapons such as swords and axes against his enemies and can dodge and block their blows. The game also includes "Fable Arts", a gauge that can be filled by dealing damage or perfectly blocking, which, once its filled, can be used to deal high damage or temporarily give the player passive abilities. Pinocchio has a mechanical arm called "Legion Arm" that can be equipped with gadgets, such as a grappling hook to lure enemies or a flamethrower. The Legion Arm can be used to restore the durability of the player's weapon, and also give it special abilities for a short time such as acid damage or guaranteed perfect blocks. The game features a "Lying System", where the decisions the player makes during certain passages affect the course of events, leading to three different endings.