Dynamite Headdy is a platform game in which the player controls Headdy, a puppet with a detachable head. This head can be fired in eight directions to attack enemies and obstacles, as well as retrieve out of reach items. By grabbing a HangMan, Headdy is able to pull himself up various platforms, or drag certain areas towards him. By finding a walking case named HeadCase, Headdy can gain a special head type depending on the image shown on HeadCase at the time he hits it. These range from offensive heads that increase his strength, allows him to shoot homing stars or suck up everything on screen, to support heads which include invulnerability, shrinking to reach small areas and sleeping to regain health. Most of these heads have a time limit before the head returns to normal, with the player able to cancel at any time, though some heads, such as the Pin Head, disable manual cancellation. The game also features a side-scrolling shooter stage, during which Headdy can change between three unique Head Types.
