The game starts in a procedurally generated world. The player starts with three basic tools: a pickaxe for mining, a shortsword for combat, and an axe for woodcutting. Many resources, notably ores, can be found while mining or exploring underground caves. The player begins with a limited amount of health and magic points, which can both be increased by finding certain items by exploring. Some resources, and most items, may only be found in certain areas of the map, stored in common and rare containers, or dropped by certain enemies. The player uses resources to craft new items and equipment at an appropriate crafting station for that recipe. For example, tables or other items can be crafted at a work bench, and bars can be smelted from ore at a furnace. Several advanced items in Terraria require multiple crafting operations where the product of one recipe is used as an ingredient for another

The game recognizes many different biomes and areas, defined by the blocks that exist in the vicinity, each home to a unique set of enemies. If the player journeys to the Underworld and summons and defeats a boss there called the Wall of Flesh, the game enters "hard mode", which adds many new and much stronger enemies throughout the world, as well as new NPCs, bosses, ores, and items.