Final Fantasy Legend II uses a guild system simular to The Final Fantasy Legend, except the player is not able to revisit the guild to change characters when they die. When a party member's HP reaches zero, they are considered knocked out rather than dead. The party loses the battle if all members are knocked out. After losing a battle, the party meets Odin who offers to let them replay the battle from the beginning. Once the party has defeated Odin, having all party members knocked out will result in game over.
The player is given a choice of four races, three of which are from the original Legend:
- Humans - Humans do not learn any abilities, but their stats increase randomly after battles depending on equipment used. They have the most equipment slots and are able to drink special potions to increase their stats. Their stats raise more easily than Mutants.
- Mutants (called Espers in the Japanese version) - Like Humans, Mutants get random stat increases after a battle. Unlike humans, however, mutants may learn new skills at the end of battle, with up to a total of four skills being available at once.
- Monsters - Monsters get stronger by changing into other Monsters. After an enemy monster is defeated in battle, they may drop meat which the player Monster can choose to eat. Eating meat transforms a Monster into a different species of Monster, giving them a new set of skills and stats, potentially making them stronger, though they risk transforming into a weaker Monster, as well.
- Robots - Robots stats are dependent entirely on their equipment. When a Robot is equipped or unequipped with a weapon or skill, it loses half of its durability points. When a Robot rests at an inn, however, the durability of all its equipment is restored to half of their default maximums. Robots are also able to equip multiples of the same type of equipment; for example, robots may equip three helmets, while Humans and Mutants may only equip one type of headgear at once.
Additional guest characters will assist the party at certain points of the game. Unlike the main party, these characters have predetermined names and stories.