In Chao World, players raise virtual pets, called Chao. The island has three chao gardens for Dark Chao, Neutral Chao, and Hero Chao. There are also other places, such as the Chao lobby, a cave where karate matches and Chao races are held, found in the Neutral Chao Garden, and the Chao Kindergarten, where Chao can be taught arts and crafts. The Chao Kindergarten is also where you name your Chao (Fortune Teller), check its stats (Doctor's Office), and buy hats and special fruit for your Chao, in the Black Market, with rings you've collected from Action Stages (Battle only).
The only way to unlock the Chao World per character is by getting the Chao Key placed in every stage. When a character enters and exits a Chao Garden after accessing through a Chao Key when finishing a stage, the screen will turn white and the player will return to the Stage select/Story mode. Once the player unlocks the Chao World, he/she can access it through the Stage select with the character played.
- The music for the Lobby was used in Sonic Adventure, in the Chao Race menu. This is not true for Sonic Adventure DX: Directors Cut, which uses the Chao Racing Stadium music from Sonic Adventure 2: Battle and does not share the same music as this place.
- In the original Sonic Adventure 2, Omochao originally greets the player to Chao World, but he is removed in Sonic Adventure 2: Battle.