One Halloween night, Sandy, SpongeBob, Sanjay, Craig, Buhdeuce, SwaySway, and Mikey are invited to a Halloween party. When they arrive at the creepy house, they realize that no one is there and Mikey calls out. SpongeBob questions whether they are at the right house, but suddenly a ghost appears and scares him. Sandy karate-chops it, chasing it away and commenting on how easy it was to do so. She then realizes that everyone else has disappeared, and goes looking for them after picking up a ghost vacuum by the door.
It is later revealed that SpongeBob was turned into a ghost after she encounters him and reverts him back to normal. However, he does not remember much, only knowing that he was suddenly scared by a strange ghost.
The player must explore the various suites in the mansion, searching for objects in each room for ghosts. The arrow keys are used to walk around and the player automatically runs after walking for a while, when they collect 100 pieces of candy or when a ghost is present. When they find an object with a ghost, they must hold space and move backwards in the direction of the arrow shown until the ghost's health is depleted. Ghosts not being attacked will rush at the player.
If the player presses the wrong Up or Down arrow key, the ghost is let go. Once all the ghosts in a room are defeated, the door to next room is unlocked. The player can collect candy by searching for objects without ghosts or defeating the ghosts. If 100 pieces are collected, the player runs all the time, becomes invincible, and can reduce the health of ghosts much faster. The effect lasts for a few seconds and the candy counter will go back to 0 after the effect ends.
In the last room of each suite is a boss, usually a main character from the show (although in the first few room of each floor they may be minor characters considered frightening in appearance). They have 100 health points (compared to a normal ghost's which is low and increases with each suite) and release spiders when they break free (normal ghosts do not break free at all). They will rush at the player like normal ghosts but will disappear and then appear behind the player after a while (this also happens after they break free).
After the boss is defeated, the player can exit the suite and move on to the next one. After completing the last suite on a floor, a character who was transformed into a ghost (the final boss of each floor) will revert back to normal and be rescued. They will also provide information on what happened to them, getting more detailed if the levels are completed in the order they were unlocked.
There are four floors, with seven suites on each floor. Upon the game's release only the first floor is unlocked, but the others floors (the second floor, the third floor, and the basement, in that order) were later unlocked through updates. There is also a foyer with a Hall of Portraits (unlocked after beating five suites) that allows the player to see the bosses they have defeated and all the characters that have been rescued (including Sandy, if one has changed characters). These characters can be switched to by attempting to examine them, and they will automatically be switched to upon their rescue.
After all the characters have been rescued, the player may attempt to leave the mansion but will face the final boss in the courtyard, which is the ghost first encountered when they entered the mansion.
There is a bar similar to a bar of health for the player. Every time the player touches a spider or ghost, the bar goes down. When the bar is depleted, the player drops the ghost vacuum breaking it and the game ends. It is replenished by collecting hearts, which are found along with candy when examining objects or defeating bosses.