In Peggle the player's objective is to clear out all the orange pegs on the screen. This is done by using a cannon at the top of the screen to shoot a metallic ball that bounces between the pegs. The hit pegs will then light up before disappearing. In addition to the orange pegs, there are also blue pegs that are the majority and give fewer points, purple pegs that are worth 50x the value of the blue, and green pegs that activate a magic power. In total there are 10 magic powers, each tied to a character that can be chosen before a level. On the bottom of the screen is a bucket that moves left and right. Hitting the bucket results in an extra ball. For each level, the player has 10 balls to use.
Four game modes are available. In the adventure mode, the player progresses through all 55 levels to become a Peggle master. In the quick play mode, players can freely play any of the levels that have been completed in the adventure mode. In the duel mode, players can compete against a human or computer opponent. In the challenge mode, extra difficult feats are offered.