In the Game Boy Color version of Xtreme Sports, players compete against more than 200 computer-controlled opponents on 25 different tracks in sports such as street luge, skateboarding, inline skating, surfing and skyboarding. At the start of the game, players choose between characters Guppi and Fin and set off on a trip sponsored by the Xtreme Cola Company, which has invited all extreme sports athletes to Xtreme Sports Island to compete in a tournament. Among the people players encounter are the members of the Bone-Heads gang, who are the antagonists. The player's objective is to unravel the mystery behind them and win the tournament at the same time.

There are two modes available: Practice and Xtreme Island Adventure. In the former, players can participate in 15 different challenges with 3 difficulty settings. In the latter, players move around the island participating in events and exploring the surroundings. Some of the people players meet will give the player clues to solving the mystery of the Bone-Heads while others will issue challenges to compete in various sports. Players collect medals as the player win events. Players must win a certain number of easier challenges before the referees will allow the player into the tougher ones. Along the way players can also find Twitchy Shakes, which are special drinks that will increase the player's abilities depending on the next event the player enters. Players may be able to attain higher speeds or even become invincible.