The game initially restricts the player character to a dark, lonely area with the occasional zombie or other generic monster. This is where the basic in-game gameplay is introduced—like in Minecraft, finding resources is essential, but the world is largely non-destructible so they are instead used to fight off and defend against monsters. It is also the introduction to the game's strange style, which revels in non-Euclidean environments with organic pulsation, uncanny and eldritch objects, and dynamic colored distance fog even where it does not make sense.
Gameplay shifts dramatically after the player first tracks their sleep using the XenoDisplay. The player's brain activity and heart rate, among other factors, are used to determine their dreams and which ones cause repulsion and similar negative reactions. The next time the player starts the game, a cave mouth will appear, leading them out into the outside world sculpted from their own nightmares. After several nights of sleep-tracking, the game gets to know the player's greatest fears, and will use these fears against them throughout gameplay. The fears tend to appear as monsters if concrete, or as situations the player is led into if abstract. However, this also empowers players to take on and defeat the things that scare them most, if they are brave enough and the game does not choose to take further advantage of them.
Due to Xenograft recalling players' dreams after they may have partially forgotten them, Xenograft has been called "thoroughly trippy in making players recall what they didn't remember experiencing", as well as "creepily intrusive", despite praise towards its complex execution. However, one critic has also noted, "Looking at others' save files to acquaint myself with a more objective view of the game, there seem to be common elements [that are] present regardless of what Xenograft has learned about its player". Further research suggests that these elements may be referential to LSD: Dream Emulator and other surreal and horror games.
Xenograft has a smaller but more dedicated following than other XenoDisplay launch titles. The fandom generally writes creepypasta, and tries to decode the game's algorithms and manipulate them using tactics such as lucid dreaming.