Throughout the game, the player is followed by two monsters: a feminine figure that haunts the first three levels, and a trench coat-wearing figure that haunts the final level. The monsters' appearance is indicated by the blurring of the vision, grating sounds, and in the case of the feminine figure, a slow lullaby (Trollmors Vuggesang sv, "Trollmother's Lullaby") hummed about. There is no way to fend off the monsters; if they appear, the player will have to run away or hide under tables or chairs until they go away. If the player is not quick enough to evade the monsters, a short cinematic will show the monsters taking hold of the player that results in a game over, followed by a continue screen with a pacifier. Clicking the pacifier restarts the game from the last checkpoint. The player can also get a game over by other means, such as falling into water or chasms.
The game is largely linear and involves going from point A to B, though the expansive environment with multiple obstacles may induce the feeling of being lost. After some time exploring the player's house, the player is taken to a dreamlike location with a gingerbread house-like hut that serves as a sort of hub level. The house contains a circular door that leads to a new level, surrounded by four containers where "memories" obtained from each level are stored. After the player finds a memory and heads to a tube at the end of the level, they will be returned to this hut. Once four memories are stored, the player can insert Teddy's right hand below the circular door to return to the player's house.
In the extra DLC level, instead of exploring dreamlike locations, the player is taken to another house with the objective of finding and thawing five frozen dolls by playing music or turning on the TV. The gameplay is still the same, with the feminine figure haunting the player, but the player is also confronted by a fireplace monster in the underground section that advances and closes in through an aisle.
Story
Set in the 1990s, a toddler is having his second birthday celebration at his home with his mother. The celebration is interrupted by a visitor at the front door who is hidden from the player, but the story suggests it is the player's father, with whom the mother has divorced.
The conversation is muffled and partly kept from the player as the mother raises her voice, refusing the father's request to see his child. The mother's angry tone frightens the toddler, whose fear is presented as blurred vision. Quickly, the mother returns with a gift, but the mother doesn't tell who the gift is from. Instead, she carries the child and gift upstairs to the child's room, a place of bright, warm colors and streaming sunlight. The mother briefly opens the gift, but looks at what is inside with a disdainful expression before quickly shutting the gift box. Before the present is given to the child, the telephone rings, and the mother leaves her baby in the bedroom to play alone. The gift is revealed to be a sentient teddy bear who climbs out of the box and hides in the chest until the child finds him. The bear introduces himself as Teddy. Teddy has a friendly, curious nature.
After a few minutes playing together with a music box, a stuffed pink elephant, a story book, and a toy train, they go into the closet, which turns out to be a large, dark room filled with long, dark colored coats. Teddy says that if the player gets scared in the dark, they can hug Teddy to feel more safe. Once the player holds Teddy, he lights the way, acting like a flashlight. The small adventure is ended by the mother finding them; she tells the child, gently but ominously, to stop hiding from her and puts him to bed. The baby wakes in the night to find Teddy being taken by an unseen force. His crib overturns, and the player escapes. The child leaves the bedroom and rescues Teddy from a washing machine by unplugging it and opening the door. The bear says that something was not right and that they had to find the child's mother.
The search leads them to discover a slide that takes them to a small playhouse within a cavern that is presumably under the house, and the door found inside it leads them into a journey through several surreal environments. Teddy instructs the player to find four memories the child shared with their mother that will lead them to her. The memories take the forms of four objects: Her pendant from her necklace shown at the start of the game, the music box she plays to put him to sleep at night, the story book, and the pink elephant. Throughout the search, the player is pursued by a large, feminine, shadow monster and a creature with glowing white eyes that has a coat as a body like the ones in the child's closet earlier.
