Theme Hospital allows you to build an environment within a hospital, which will attract patients with comical complaints, illnesses, emergencies, and diseases. The game has a somewhat dark sense of humour, which is similar to that of Theme Park in many ways. The player has no direct control over the patients that wander the hospital, although game play largely centres on influencing their actions in one way or another.

Each level consists of an empty hospital to plan and design, with set goals in the fields of financial attainment, patients cured, percent of patients cured, and hospital value. Holding negative funds or allowing sufficient patients to die will bring about losing requirements. When the goals have been met the player has the option to move on to a new, more elaborate hospital with tougher winning conditions and more diseases present.