Damud Hellstrike, the Prince of Darkness, has taken away the Golden Axe and put an evil curse over all the warriors. However, one of the heroes has their curse relieved and is sent to set things straight – lift the curse off the others, defeat the villain and return with the Golden Axe.

The gameplay has been expanded slightly but is essentially the same hack n' slash as the previous games. New features to the series include new characters, new moves (special attacks, teamwork attacks and teamwork magic spells) and junction points where the players can choose which path to take.

The characters include a giant, Proud Cragger, a humanoid black panther, Chronos "Evil" Rait, along with a swordsman, Kain Grinder, who resembles Ax Battler, and a swordswoman Sahra Burn who resembles Tyris Flare. Gilius Thunderhead is the only character who appears from previous games, though he isn't playable and only appears during cut-scenes. Kain Grinder and Sahra Burn are referred to as Ax Battler and Tyris Flare respectively in the Sega Channel localization of the game.

While the characters in the two previous games had a relatively limited moveset, Golden Axe III included many new moves including: blocking, sweep attacks, projectile attacks, defensive and offensive special attacks, and an updated grappling system. Furthermore, there are several abilities unique to certain characters: Proud possesses an airslam throw that does severe damage, while Chronos and Sahra can double jump and wall jump. In multiplayer mode, the characters can do team attacks similar to a human slingshot. Finally, each character has a super move that sends a projectile across the screen (except in the case of Chronos who leaps across the screen in an unstoppable lunging attack).

Some features that were removed in the second game were brought back in Golden Axe III. The mischievous gnomes from the original game who carried magic potions and food have returned in place of the enemy mages from the second game in the series. Extra lives can be earned by freeing a certain number of prisoners scattered throughout the levels; some prisoners are trapped in barrels, or stuck in crystal cells, others are guarded by an enemy that must be slain in order to free them. The magic system returned to the original version from golden axe 1, with charachters using all collected magic potions every time, rather than allowing the player to choose how much magic to use by charging the magic meter like in golden axe 2. On the other hand, the characters can use devastating new spells with combined casting; on a whole, magic is more effective in GA3 than the other 2, but there is no diversity in the amount of max damage—each character does the same max magic damage. The mounts in GA3 have turned into a hybrid snail-ostrich, instead of the chicken-leg or the dragon-raptors in the previous games. The mounts are known as Bizarrans. "There are three types of Bizarrans in Golden Axe 3. All are equally unimpressive – except the firewave Bizarran. One uses its tongue to attack, another will bite and throw enemies over its shoulder. Players are able to choose their own route to the golden axe. If the player reaches the last boss and they are not on their last continue they may get the good ending.