The princess of Wenlary has been taken captive by the a dragon named Zuriv. Two men, Narda and Duke, go out to rescue the princess and put an end to Zuriv.
Castle of Dragon consists of six levels. Each warrior is armed with a sword and shield and can also find additional weapons like a mace and a throwing axe. Also, there are items that can be found which lets the sword shoot out fire or lightning. The player's warrior can take a few hits and will lose their armor similar to what happens in Ghosts 'N Goblins. Items include health restoring armor, time restoring hourglasses (since it's an arcade game a credit only gets the player so far), temporary invincibility gauntlets, and speed increasing boots.
The NES version of the game while taking its cue from the Arcade version is a somewhat different game featuring a different level design among other changes.