Disney Dreamlight Valley takes place in the titular "Dreamlight Valley", a magical valley with various biomes populated by Disney and Pixar characters. The game features nonlinear gameplay similar to Nintendo's Animal Crossing games where players take control of a customizable human player character living in the valley. The valley is synced to real time based on the time set on the player's console or computer. The game's multiplayer mode involves visiting other players' Valleys.
The player can explore the valley to gather resources and use their magic to clear away "Night Thorns", unwanted plants with dark magic that spawn throughout the valley. Foods can be cooked into various meals at a cooking station such as an oven or a campfire, while other resources can be crafted into materials or furniture at a crafting station. The player can eat food to replenish energy, which is required to use magic-imbued tools including a pickaxe, a shovel, a fishing rod, and a watering can; meals can replenish greater amounts of energy than foods grown, harvested, or purchased in the valley, and can make the player "well fed", which gives them a movement speed boost, increased luck at getting resource bonuses, and the ability to sprint across the valley faster by gliding on magic (albeit at an energy cost). Furniture and certain objects can be placed and rearranged in the valley or inside the player's house, and the player can also move and rotate buildings in the valley to their liking. The player can also change their outfit and appearance at any time, clothing can be customized further by the player with a clothes and furniture designer option called "Touch of Magic". Unlike in the Animal Crossing games, the player's tools, clothing, and furniture do not take up space in their inventory; tools are selected using an option wheel and never break from use, while the inventory screen contains separate "wardrobe" and "furniture" options for clothing and furniture respectively.
The player can earn a currency called "Star Coins" during gameplay, usually by selling most items in their inventory to Goofy at various stalls run by him throughout the valley. Star Coins can be spent on crops and seeds sold by Goofy at his stalls, materials sold by Kristoff at his stall, certain foods that are only available at Remy's restaurant Chez Remy or from Gaston's stall (the latter found on the A Rift in Time expansion's Eternity Isle), or on clothes and furniture sold by Scrooge McDuck at his store. They can also be spent on new buildings or building upgrades (all handled in-universe by Scrooge's "McDuck Construction" company) that provide additional benefits, such as more items available at Goofy's stalls or more space in the player's house, or on wells strewn throughout the valley that allows the player to fast travel to different biomes.