Panic in Paradise features a new gameplay style, without the "Top Hat" mode featured in the first game. It covers thirty-six separate levels, in eleven locations. Each of these levels has their own difficulty cap. The player has the ability to purchase enhancements with an in-game currency to help progress through these missions.
The other bears are going on vacation and didn't invite Naughty. Enraged at not being invited, Naughty hunts each of them down, and ends their lives one by one.
Like the title implies, the game is set in a tropical island. Much more urbanized that the "country-like" Perfection, Paradise is full of buildings and cities and seems to be still in expansion. Yet, like in Perfection, there's a clear respect for nature since most of the island is still covered in a lush vegetation. It seems to be located somewhere in Central America because of the heavy influence of Mayan/Inca/Aztech culture (While Perfection is more North-American like). It seems to be a ground for archeologists because of the heavy presence of ruins like ancient Bearcatattoo Temples hinting about many things about the bears's ancestry customs. Yet it's a land full of creepy things and misteries, like some human-like faces engraved on some stone walls and the ancient kings of Bearcatattoo being somehow still alive and extremely powerful even after centuries, seemingly hinting about some secret energy channelled inside the temples themselves.
- If you pause the game while killing a bear and then unpause it, the bear will be killed in extremely fast motion.
- While the first game has 3 locations, this one has 11.