The game, which is set in a fanciful version of the American Old West, revolves around four bounty hunters named Steve, Billy, Bob, and Cormano who are out to claim rewards given for eliminating the most wanted outlaws in the West. At the beginning of each stage the player is shown a wanted poster.

Sunset Riders can be played by up to two or four players, depending on the version of the game. In the two-player version each player can choose which of the four bounty hunters (Steve, Billy, Bob, and Cormano) to play as at the start of the game, while in the four-player version each character is assigned to a different control panel. Steve and Billy wield revolvers, while Bob uses a rifle and Cormano uses a shotgun. The controls consists of an eight way joystick for moving the character and aiming their guns, and two buttons for shooting and jumping. The player can jump between higher and lower floors by holding the joystick up or down while pressing the jump button. There's also a slide move that allows the player's character to avoid enemy fire by pressing the jump button while the joystick diagonally downwards.

Power-ups and bonus items can be obtained by entering saloons or defeating certain sack-carrying bandits. The power-ups comes in the form of a golden sheriff badge that gives the player's weapon auto-fire, and a silver badge that grants him a second gun (allowing him to shoot at two directions at the same time). Both power-ups can be equipped at the same time. Other weapons that can be used by the player include dynamite sticks carried by female bandits (which can be thrown back at the enemy before it explodes) and a mounted Gatling gun available only in the last stage. An easter egg in the game is if Cormano is selected and facing the Level 6 boss. Should the player defeat this boss, Cormano will be seen claiming the defeated boss's sombrero and wearing it for the remainder of the game.

The objective of the game is to reach the end of each stage and defeat the outlaw awaiting at the end. When more than one person are playing, the player who deals the most damage at the boss will be the one awarded with the stage clear bonus. While most of the game has the player moving on foot, Stages 2 and 7 both begin with a segment where the player fights against bandits on a horseback. In addition, there's a bonus minigame at the end of Stages 2 and 5 where the player must shoot at enemies from a first-person perspective coming from eight different positions before time runs out. There are a total of eight stages in the game. Once the final stage has been cleared, the player proceeds through multiple endless loops where the difficulty is set on the hardest level hereafter.

The player will lose a life if he gets shot by the enemy, trampled by bulls, caught in an explosion, and so forth. When that happens, he will lose any power-ups he has obtained on his next life. The game is over when the player runs out of lives, although the game can be continued by inserting more credits.