Xtreme Sports is a sort of "sequel" to the earlier Xtreme Sports Arcade Summer Edition, but with altered characters and an actual story. Fin and his girlfriend Guppi are walking by a store window when they see a commercial advertising Xtreme Cola. The commercial announces that an extreme sports competition is being held by the company on Xtreme Sports Island. Excited, the couple decides to enter the competition, each agreeing to do their best to beat each other, but to split the winnings if either wins. However, when they reach the island, things seem strange. A worker says that there are more boats docking than there should be, despite their efforts to keep the competition a closed event. Furthermore, a strange gang called the Bonehead Gang is competing, claiming they'll take over the island.
In Xtreme Sports, there are several different sports, such as skateboarding, in-line skating, street luge, skyboarding and surfing. The player chooses to play as either Guppi or Fin at the beginning of the game. They must compete in various sports in varying difficulties against all the island's competitors, earning medals as they go along. Medals can also be found hidden around the island. They must also solve the mystery of the Boneheads. There are power-ups in the form of Twitchy Shakes, an energy drink that increases the players abilities. Each opponent specializes in a certain stat, and each area of the island hosts a different sport. This means that each event must be cleared many times to beat each opponent. There is also a practice mode accessible from the main menu.