By talking to NPCs and completing sidequests, nodes on the Community circle will fill out. The Community system, meanwhile, combines the Development mechanic of the main game with earlier Xenoblade games' incarnations of the Affinity Chart. Story progression may also unlock optional conversations at campsites, and resting at a camp provides the opportunity to apply bonus exp to the party. Other new features include campgrounds, where each party member may use their specific skills to craft items. However, all members of a character group share the same stats. Each character has their own weapon, unlike the main game, meaning Drivers and Blades have separate sets of arts. Within each group, characters may be assigned the roles of vanguard or rear guard, which determines their style of combat, and they may switch roles at will in the heat of battle.

Any of these characters, human and Blade alike, may be directly controlled by the player in the refined battle system. Lora, a mercenary from Torna, is partnered with the Blades Jin and Haze the party is later joined by Ardainian emperor Hugo and his two Blades, Brighid and Aegaeon. In addition to the team of Addam and Mythra, players may control two other groups of characters. Taking place 500 years before Xenoblade Chronicles 2, this RPG expands upon the story of the Aegis War and reveals the pasts of many of the Blades encountered in the main game. This second Aegis, a woman named Mythra, may be Alrest's only hope, but she has much to learn about herself and the world before she will be ready to face Malos. In order to stop him, Addam Origo, one of the princes of the kingdom of Torna, is called to awaken the other Aegis. He is an Aegis, one of two divine Blades taken from the World Tree, and therefore possesses power previously thought impossible. The world of Alrest is under attack by Malos, one of the artificial lifeforms known as Blades.

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