The game is played on four grids, two for each player. The grids are typically square – usually 10×10 – and the individual squares in the grid are identified by letter and number. On one grid the player arranges ships and records the shots by the opponent. On the other grid, the player records their own shots.

Before play begins, each player secretly arranges their ships on their primary grid. Each ship occupies a number of consecutive squares on the grid, arranged either horizontally or vertically. The number of squares for each ship is determined by the type of ship. The ships cannot overlap (i.e., only one ship can occupy any given square in the grid). The types and numbers of ships allowed are the same for each player. These may vary depending on the rules. The ships should be hidden from players sight and it's not allowed to see each other's pieces. The game is a discovery game which players need to discover their opponents ship positions.

The 1990 Milton Bradley version of the rules specify the following ships:

No. Class of ship Size 1 Carrier 5 2 Battleship 4 3 Cruiser 3 4 Submarine 3 5 Destroyer 2

In 2002, Hasbro renamed the Cruiser to Destroyer, taking three squares, and introduced a new two-square ship called the Patrol Boat. No. Class of ship Size 1 Carrier 5 2 Battleship 4 3 Destroyer 3 4 Submarine 3 5 Patrol Boat 2

After the ships have been positioned, the game proceeds in a series of rounds. In each round, each player takes a turn to announce a target square in the opponent's grid which is to be shot at. The opponent announces whether or not the square is occupied by a ship. If it is a "hit", the player who is hit marks this on their own or "ocean" grid (with a red peg in the pegboard version). The attacking player marks the hit or miss on their own "tracking" or "target" grid with a pencil marking in the paper version of the game, or the appropriate color peg in the pegboard version (red for "hit", white for "miss"), in order to build up a picture of the opponent's fleet.

When all of the squares of a ship have been hit, the ship's owner announces the sinking of the Carrier, Submarine, Cruiser/Destroyer/Patrol Boat, or the titular Battleship. If all of a player's ships have been sunk, the game is over and their opponent wins. If all ships of both players are sunk by the end of the round, the game is a draw.