A detective is summoned by the exasperated mother of Jane, a little girl that fell into a strange slumber one night, staying tucked in bed while holding a headless doll and never waking up from her deep sleep. All the leads point to Felicia, the evil daughter of the Puppet Master and inheritor of his creations, that escaped at the last minute during the course of a previous investigation by the same sleuth. She controls mechanical dolls that have the power to trap human souls, and must be found and stopped to save the poor child.
Like its predecessor, PuppetShow: Souls of the Innocent is a standard first-person adventure game with hidden object challenges and simple puzzles for the casual audience. There is a choice between two difficulty modes at the start, a regular mode with shorter recharge times for the skip and hint button and sparkles indicating interactive areas and hotspots, and a more challenging expert mode without area hints and longer recharge times. The main objective is to collect a series of items and use them to solve the puzzles found on all the available locations. The objects are stored in the inventory at the bottom-left corner as a fan that opens up by pressing the tools button, showing all the collected items inside slots at the tip of every blade, from where they can be dragged and dropped on interactive portions of the scenery to perform an action or complete a task.
Some of the necessary items are only received after completing one of the hidden object scenes, taking place on separate screens where the goal is to find and click on all the objects listed at the bottom, on cluttered locations filled with assorted paraphernalia scattered around the scenery. The inventory is replaced by the hint button, showing the position of one of the required items when activated, but taking some time to recharge after use. Mini-games also appear on separate screens, where mechanisms and pieces have to manipulated to solve puzzles. They can be optionally skipped after a few minutes.