Despite the system's highly touted 3-D capabilities, Steel Diver actually plays in a side-scrolling perspective and in a 2-D plane, where the bulk of the depth is simply in background graphics. Players control a submarine navigating underwater environments and a variety of hostile elements, including mines, enemy submarines, and various rocky obstacles. Control is performed entirely through the touch-screen. Players utilize horizontal and vertical sliders to move the sub forward horizontally and vertically in the water, and tilt a wheel to change the angle of the submarine. The further the sliders are moved, the faster the speed. Torpedoes and repairs, as well as adjusting the map screen are also used simply by tapping the appropriate points on the bottom screen. Action isn't necessarily fast-paced, and players must learn to monitor and correct the movement of the submarine as it may continue to "drift" in the water. Three different submarines are available at the start of each mission with different sizes and attributes, from small and fast to large and tough.
Besides the regular campaign mode, played through the 2-D side scrolling environments, there is also a more 3-D style periscope mini-game segment. All control is again performed through the touch-screen, with an option to rotate the view of the periscope by physically moving the 3DS system (and yourself in the process). As this view is seen as if through a periscope, it takes on a first-person orientation. Here, players again have the ability to dive and repair leaks, but must use some strategy to launch torpedoes at constantly moving distant ships.
This segment is a one or two-player turn-based strategy game played through an overhead hexagonal map, rather like the Battleship tabletop game. Like Battleship, enemy ships aren't initially visible and must be discovered to be attacked. Rather than launching relatively random attacks, enemy ships are discovered by moving near them or using sonar. This game features three types of ships: Submarines, escorts, and supply ships. Only submarines can enter enemy territory, and of course, the game ends when one player has all their ships destroyed. Supply ships cannot attack. Movement and controls are again performed through the touch-screen (which shows the hexagonal grid). The top (3-D) screen shows the action of the battle.
Steel Diver features download play, meaning that two-player gameplay can be done with one game card (but two systems). "Ghosts" may also appear in the game as a competitive element representing the player's previous "best time" for a stage or mission.