Nancy Drew: Alibi in Ashes takes place in Nancy's home town of River Heights where she is competing in a "Clues Challenge" treasure hunt contest. While looking inside the old Town Hall during the contest, the building suddenly catches fire and Nancy is barely able to escape the blaze. When the fire is determined to have been set by an arson, Nancy is locked up in the city jail as the prime suspect! Luckily Nancy's best friends Bess and George, as well as her boyfriend Ned, are there to lend a hand to prove her innocence and catch the real culprit.
Nancy sets up a command post, of sorts, in the jail. Ned, George and Bess then become playable characters to interview the suspects, search for clues and bring any items of interest back to Nancy for analysis. The four communicate using their cell phones so that everyone stays up to date with the case. Nancy stays in charge, directing the others, and therefore must be called before switching characters.
The game is mouse driven and features two difficulty settings, Junior and Senior Detective.