Xiao Xiao #2 adds interactivity; the stick-man (Xiao Xiao) faces a series of physical challenges, the outcomes of which depend on the player's timing. The game contains many features that would later become a staple of the Xiao Xiao series, including revamped animation and character design, most notable the introduction of the series' main antagonist, "The Boss" (although he is not referred to by name until Xiao Xiao #3), a magenta-colored crime boss who acts as the final challenge of the game via a boss fight.
