The two main modes of playing in Forza are the customization mode, and the racing mode. Customization lets you take any of the cars they have purchased using the in-game currency, and modifying them in various ways to suit your driving style. Almost all aspects of the car can be modified including tire pressure, suspension, engine, spoilers, etc. The game also contains a sophisticated decal editing/painting mode which lets you customize the look of the car, this mode existed in the original Forza and many people created very impressive images including the Mona Lisa. New to the series is an online auction house where people around the world can buy and sell custom cars that they've created using the in-game currency. Cars that are purchased or modified yourself can then be raced either online or through the single-player career mode.

Racing is the other side of the Forza coin. In Forza 2 the developers have claimed that they've increased the game's simulation speed to 320FPS from the first game's 120FPS. They claim that this increased sampling rate has a significant impact on the authenticity and handling on the cars. Racing modes include time trials and normal races against other opponents. Each successful race rewards you with in-game money which can then be used to purchase new cars either stock from the game's database, or pre-modified cars that are put in the auction house. Due to the game's realistic nature there are a number of assists that are available to players that are new to the game. Anti-lock brake systems, vehicle stability assist and driving lines are all available to use to make the driving experience easier and more straightforward.

Forza 2 is also the first game to be built from the ground up to make use of Microsoft's wireless force feedback steering wheel. The Forza team has also included multi-display functionality to enhance the Forza experience, this allows you to hook up 4 Xbox 360s through a network, hooked up to 4 independent displays to have displays act as the front and side angles, with the fourth being the rear-view mirror. To have this setup requires 4 Xbox 360s, 4 monitors, and 4 copies of Forza.