Each faction controls a number of settlements, and must conquer others in order to continue growing. Unlike previous Total War titles, there are two kinds of settlements, each with different advantages and disadvantages: cities and castles. Castles have better defensive capabilities and have access to a larger selection of soldiers, but generate less income, cannot train as many priests as cities, and have no access to higher civilian technologies. Cities generate much larger income and are technological centers of a faction, but are more difficult to defend and only have access to militia troops, which are generally inferior to those trained at castles except for a select few unique units. A small quantity of militia troops, stationed in the city where they have been trained, can be kept for free, without upkeep cost, otherwise required to be paid every turn for every army unit. Players may convert a settlement to a different type, although larger cities may not be converted into castles. Castles also need less population to be upgraded.
As in other Total War games, in each settlement the faction may construct a number of buildings, each with different functions, such as training troops, upgrading weapons and armour, expanding the economy, increasing the settlement's defenses or strengthening religion. A new feature of Medieval II is the ability to build guild halls. A given settlement may only have a single guild hall, although there are several different types. The guild hall provides certain bonuses such as increased movement for troops, better weapons, or better agents; some even grant access to new units, such as the ahistoric yet effective unit of "Sherwood Archers" available to England upon construction and subsequent upgrade of a Woodsmens' Guild. Guild halls may also be later upgraded to a "Master Guild Hall", which may provide a larger bonus or even grant a bonus to all of the faction's settlements while still retaining a more notable bonus in the city the structure is built, and then possibly upgraded to the "Guild Headquarters", which provides the greatest bonuses, although each guild can have only one headquarters anywhere in the world at the given time, and each faction can only construct one Master Guild Hall of each guild in their empire. It is possible however, to capture a city with an existing Master Guild Hall of a certain type, and have two of one kind.
Religion plays a large role in conquests and overall gameplay. The major religions in the game are Roman Catholicism, Orthodox Christianity, and Islam. "Heresy" and Paganism play minor roles; heresy causes disorder in a province and spawns heretic agents, who in turn raise the heresy level and must be denounced by priests, which if they fail, may become heretics themselves, or decrease the chance of denouncements becoming successful. Paganism is negligible in the Old World but is the religion of the Aztecs and is the only religion present in America by default. The player must monitor and safeguard the spiritual state of their faction's domain, maintaining it through building places of worship for their faction's religion and by training Priest or Imam units to spread their faith. The presence of faiths other than the faction leader's in a city tends to generate unrest, and so religious buildings and units combat this by converting people to their own religion and eliminating the heretics and witches that appear on the map.
Catholic factions must also contend with the Pope, who can issue missions (similar to the Senate in Rome Total War), and excommunicate factions. A player who strongly enforces the faith, builds cathedrals and completes the Pope's missions will receive favor from the Pope; a player who ignores his missions, fights with other Catholic nations and allows the faith to flounder will incur the Pope's displeasure and may be excommunicated – which also leads to unrest, which may cost the player's faction entire cities immediately, and the possibility of a Crusade being declared against a settlement belonging to the player's faction. It is most likely the Pope would send Inquisitors to your lands (see Agents List). Papal missions pursue the interests of the Catholic Church, and include the construction of religious buildings, cessation of hostilities against fellow Catholics (yet these will be rescinded if the target kingdom attacks you) and the assassination of heretics and witches.
The Pope also appoints Priests from the various factions as Cardinals; when the Pope dies, the Cardinals elect one candidate from among the three most pious to be the new Pope. A player with many Cardinals can thus use them to influence who becomes the new Pope, and how the player votes in the election has an effect on the new Pope's relations with the player. However, a player with few or no Cardinals can still influence a Papal election by bribing other factions to vote in a particular way. A chosen Pope that had belonged to the player's faction before being appointed will begin with a more favorable view concerning the actions of that faction, while a Pope chosen from among the units of a player's enemy may look negatively upon that player's faction.
From time to time, Crusades and Jihads may be called at the request of factions. To call the Crusade, one needs to be at good relations with the Pope, while the Jihad requires only an Imam with high piety. Crusades and Jihads both use a religious leader's authority to single out a region for conquest by factions of his faith; each faction of the appropriate faith may then raise Crusader or Mujahideen armies by committing a General and an army consisting of at least 8 units. These armies gain access to special religious units to recruit for use in battle. Crusades and Jihads move significantly faster than normal armies, but will begin to suffer from desertion if they fail to make sufficient progress or lose their leaders. Successfully capturing the target region gives rewards to the faction; failure results in negative traits for the faction's leaders and the loss of the army. It should also be noted that, perhaps due to a game bug, factions of religions not pertaining to a holy war (be it Crusade or Jihad) may be rewarded in their participation against a target city; Hungary, for example, may be rewarded at the end of a successful Jihad if it captured Constantinople from the Byzantine Empire and granted ownership of the city over to a Muslim faction despite Hungary being a Catholic nation.
Each faction has a ruling family. Once male family members come of age at 16, they act as units that can be used to govern settlements and lead armies in battle as generals. Each character has attributes that determine their prowess in both. They also have the ability to hire mercenaries, which may grant them a Mercenary Captain being added to their retinue. Mercenaries are competent and many of the units available cannot be trained by themselves. A character's actions can affect his attributes - for example, a general who routinely kills prisoners of war may see his "dread" increase, making him frightening to foes; a general who prefers to release prisoners may instead increase his "chivalry", which makes his own troops braver. Characters also develop (or regress) by gathering traits and retinue members. Characters can take after (or rebel against) their parents, traits like alcoholism are self-perpetuating, inbreeding tends to strengthen when inherited, naivete and paranoia are mutually exclusive but both detrimental, etc. Some traits, mostly positive, are brought out by victories in battle: for example, generals can become increasingly scarred as time goes on, and generals who successfully complete a Crusade gain chivalry, command, and piety points. Others accumulate while governing a city: poorly managed backwaters tend to bring out the worst in generals, reinforcing negative characteristics, whereas advanced, central cities improve a general's traits. Strong traits can earn the general epithets, such as "the Brave," "the Just," "the Lewd" or "the Corrupt." These are decorative.
Captains are leaders of armies that do not have a family member controlling them. They don't have any special attributes or retinue, but if killed in battle troop morale decreases, increasing the chance that the army will rout. If killed or assassinated, a new captain will instantly appear and take command of the army in question. If a captain is victorious in a particularly one sided battle or has shown excellent leadership, he may become 'Man of the Hour', and comes with an option to adopt him into the Royal Family. If adopted, he turns into a General and may gain attributes and retinue. If declined, he continues to be a generic captain. A unit left with only a captain may rebel and join the rebel factions.
Each faction has a number of agents it may use to maintain order and influence other factions. These include the Priests and Imams, as well as princesses, diplomats, merchants, assassins and spies. Each agent has attributes that develop the more he is able to successfully be used. Princesses, for example, have a "Charm" attribute that governs their success in diplomacy and the likelihood that a proposal in marriage will be accepted. Spies and Assassins have a "Subterfuge" attribute which governs how likely they are able to infiltrate enemy cities or find information about enemy armies. Except for princesses, all agents are trained at settlements which contain the appropriate buildings - for example, Christian priests can be trained in any settlement with a church or chapel. Princesses cannot be so trained; they are born into the player's ruling family, and become active as agents once they come of age at 16.
Diplomacy is performed by diplomats and princesses and functions much as in previous Total War games, mainly involving negotiating treaties such as cease fires, alliances and marriages. The interface for negotiation has changed from previous games, however; a new system has been integrated to show the other faction's attitude toward the player's faction, intelligence estimates (such as how wealthy the faction is and what other factions they are at war with), as well as how fair the other faction feels the player's proposals are.
Inquisitors are controlled by The Papal States and are sent to the player's lands if you have fallen out of favor with the Pope. They can accuse any agent of heresy, and if they are found guilty, they will be executed. Generals, and even a player's King, may fall prey to them. It is unlikely that your agents will survive the denouncement, only under rare circumstances. To get rid of Inquisitors, gain favor with the Pope by building churches and converting the population, and avoid attacks on any more favorable Christian nations, or perhaps even attempt to assassinate them.
The game uses a system of turns, with each turn representing two years in the history of the world, although the season still changes each turn, as in Rome: Total War. Also the named characters such as Family Members, Assassins, Diplomats age 0.5 years per turn. This can result in characters living in excess of 100 years of Medieval history, whilst only aging 25 years. This can be rectified by altering a value present in the descstrat file in the game files. Game starts in 1080 summer and end in 1530 winter, thus whole game is 225 turns.
One of the main focuses on the Total War franchise is its incorporation of battle within the greater sphere of gameplay. A battle consists of two or more factions' armies fighting each other. Battles play similar to those in Rome: Total War, with formations of various kinds of troops fighting. The objective of the battle is to defeat the enemy army by completely destroying it or causing the whole army to flee; in a siege battle, the objective is to completely destroy the army or to take control of a plaza in the center of the settlement. There is also an option which allows the player to allow for time limits on battles, meaning that the attacker must defeat the defender within a certain time limit (determined by the computer) or the battle results in a victory for the defender.
Unlike in previous Total War titles, a new system of modeling troops on the battlefield has been introduced. Each soldier has a varying number of elements to him, such as arms, legs, body armor, shield heraldry, and so forth; each element has a varying number of styles. When a battle is entered, the computer randomly selects elements for each soldier in the unit, thereby making each soldier look different from the soldiers around him. This can lead to some errors though, for example a general's bodyguard of the Holy Roman Empire can be portrayed with a shield with English or Byzantine twist upon it. Upgrades to a unit's armor are also depicted - a unit of unarmored spearmen upgraded to have leather armor will be depicted wearing it. Another departure from earlier Total War games is that combat is depicted more realistically, with soldiers performing motion-captured attacks - rather than one or two standard attacks - utilizing their shields, parrying blows and delivering killing strikes to downed foes, all sensitive to the weapon they are using and the weapon of their opponent. Blood can also be seen on the uniforms of soldiers who have been fighting and a mist of blood will be visible on soldiers hit by arrows. The amount of detail in the fight sequences can be turned up or down along with the other video options in the main menu. A player can also have up to 4800 (huge units option) troops in their army.
- England: The English, representing The Anglo-Norman Kingdom of England, has excellent archers such as longbowmen (i.e. Yeomen Longbowmen, Retinue Longbowmen ), strong heavy infantry such as billmen, and strong but little variety in cavalry, and are completely lacking in late-period spearmen such as pikemen. The English are Catholic, with their capital city being London. They focus on the conquest of France and Scotland.
- France: The French possess superior heavy cavalry such as gendarmes and lancers, strong professional armies, decent crossbowmen and good all-around units in the late period. However, they lack effective early period infantry. France stands proud and powerful. Notions of courtly love have ushered in an era of nobility and chivalry. The French are Catholic, and have Paris as their capital. Their historical enemies are England, Milan, and the Holy Roman Empire.
- The Holy Roman Empire : The Holy Romans, representing The Holy Roman Empire of the German Nation; consists of units that are strong all around, with specialized late-period landsknecht units and other heavy infantry. (However, they don't have any archers except for peasant archers, favoring crossbows instead.) The Germans also have excellent cavalry in the form of Gothic knights and pistol-carrying reiters. The Holy Roman Empire stretches across central Europe. Ruled by an emperor, who is crowned by the Pope himself(hence Holy Roman), the Germans' influence is strong and far-reaching. Because of their starting position, they are able to quickly become a dominant power in Central Europe. As a consequence, however, they also have many enemies willing to destabilize their influence, namely: France, Poland, Hungary, Milan, Denmark, Venice and the Papal States. The Holy Roman Empire is Catholic, with Frankfurt as their capital.
- Spain: The Kingdom of Spain. Represents the new dual monarchy of Castile and León. They have access to powerful cavalry in all periods, strong infantry such as Conquistadores, and excellent missile units, as well as good late period technology. The Spanish have professional armies, but lack spearmen in the early period. The Spanish are Catholic, with León as their capital. Their traditional enemies are Portugal and the Moors.
- Venice: The Venetians of Italy possess excellent infantry, militia and colonial units, but mediocre cavalry. As well as itself Venice owns Raguza in modern Croatia and the Isle of Crete. The Republic is Catholic with Venice as their capital city. Venice is perhaps the most defensible city in the entire game, which is a great advantage. Their notable enemies are the Holy Roman Empire, the Italian powers, and the Byzantine Empire.
- The Byzantine Empire: The Byzantine Empire is the surviving portion of the ancient Roman Empire. It stands on the crossroads of Europe, Asia, and Africa. A prophetic dream had led the Roman emperor Constantine to found the Byzantine capital of Constantinople, which has grown into a center of culture, commerce, and diplomacy. Byzantine armies have both Western and Eastern influences, with good heavy infantry and archers with early period infantry units like Varangian Guard, disciplined militia units, and missile cavalry, but lacks effective late period units, firearm technology, or spearmen. Their territory encompasses the Anatolia, Nicosia, and Greece, bringing them into conflict with the Turks and Venetians, while the Russians menace the empire from the north. The Byzantines are Orthodox, with Constantinople as their capital.
- Denmark: The Danes represent the various Norse and Scandinavian fiefdoms and duchies, and have access to special units such as Vikings and huscarls. The tenacity of the country has now been turned towards forming a kingdom whose conquest and colonization replacing raids and spoils. Ferocious in battle, the Danish people have would have lost none of their expertise in war. However, a country requires not only a warrior, but a statesman to lead it to greater glory. The Danes have very strong infantry and cavalry, but limited missile troops. The Danes are Catholic. Their enemies are the Holy Roman Empire and other Northern European factions.
- Egypt: Representing the Muslim Fatimid Caliphate and its successive dynasties; the Egyptians possess strong cavalry, such as Mamluks, but limited artillery and mediocre infantry. They start in Egypt and the Southern Levant, slowly making their rise North. The Egyptians are Muslim, with Cairo as their capital. They have no natural enemies (they are surrounded by rebel cities and castles with no interest in attacking Egypt) and start with usually high relations with its neighbors, the Turks. Its enemies are the European Crusaders, who will attack Jerusalem and Antioch, and later (if the player chooses) the Turks, the Mongols and Timurids. They have a strong cavalary but lacks at heavy infantry such as Assasins.
- Hungary: The Hungarians possess strong cavalry and strong high period infantry; though lacking any form of good infantry. Hungary starts with the towns Budapest and Bran. From the beginning of the game, Hungary quickly becomes the Catholic frontier against Orthodox and Muslim forces, and is well placed for any Crusades that may occur. The Hungarians are Catholic, with their capital as Budapest. It enemies include Venice, Poland, and the Byzantine Empire.
- Milan: The Duchy of Milan and Genoa has strong Italian militias and can access Genoese crossbowmen. They have excellent late period technology but poor cavalry. The Milanese are Catholic, with their Capital at Milan. Its enemies are the Holy Roman Empire, the Italian powers (Venice, the Papal States and Sicily) and France.
- Moors: The Moorish emirate of Spain of Northwestern Africa, representing the Almoravid dynasty, possess a fusion of camel cavalry and spearmen, and have few, but effective, late period units like camel gunners. The Moors are Muslim with their historic dual-capital cities being Cordoba and Marrakesh. Moorish bodyguards include the Christian Guard, which are Norman mercenary knights hired to defend the Sultan. They match all Western European heavy cavalry of the era and are a effective fighting force even on foot. The Moors usually end up fighting the Spainish and Pourtugese for the Iberian Peninsula, with possible conflict with European powers in Northern Africa (particularly Sicily and sometimes Venice or the Papal States).
- Poland: The Kingdom of Poland; representing the Piast Dynasty; possess excellent cavalry, such as Hussars and szlachcic, and despite weak early period infantry, the Poles have strong infantry in the late period. The Polish are Catholic and have Krakow as their capital city. They Polish conquest East and West brings them into conflict with Russia, the Holy Roman Empire, and possibly Hungary and Denmark.
- Portugal: Along with Pamplona, the Portuguese represent the Kingdoms of Portugal and Navarre (Pamplona was Navarrean) and possess improved units such as arquebusiers and javelinmen and have excellent late period technology as well as the best navy. However, they lack late period professional armies and has weak heavy cavalry. The Portuguese are Catholic, with their capital being Lisbon. They, like all the Iberian factions, fight over the peninsula.
- Russia: The Russians; representing Kievan Rus' and later the Novgord Republic, possess the best cavalry and missile cavalry in Europe and have excellent foot archers, as well as dvoryane and boyar sons units and firearm troops. However, they have poor early period infantry. The Russians are Orthodox; their capital is Novgord. The Russians are perhaps presented with the best starting position, surrounded by rebel cities and castles with vast spaces in between. However, they must expand quickly, for with expansion into the West, their notable enemies become Poland, Hungary, the Byzantine Empire, and, later, the Mongols and Timurids.
- Scotland: The Scots have excellent pikemen, skilled archers and heavy infantry, but have poor cavalry and lack any kind of notable gun technology aside from artillery. The Scottish people are Catholic, and they focus on the conquest of the British Isles before expanding into Western Europe.
- Sicily: The Sicillians; representing the Norman-Italian Kingdom of Sicily and later after a split the Kingdom of Naples as well; have a mix of units including Arab archers, Italian militia units and Norman knights. They can field chivalric knights. After a Norman conquest helped Sicily fend off Arab occupiers; the nominal Duke of Sicily granted the Normans rule over them. The Sicilians are Catholic with Palermo being their capital. Sicily has been seen to be 'enemy less' until late in the game, with the Sicilians coming into conflict with the Papal States, Venice and the Moors.
- The Turks: Representing the Seljuk dynasty and later the Ottoman Empire, the Turkish sultanate has the game's strongest siege artillery upon inclusion of gunpowder as well as powerful ranged units, especially Janissaries, but poor armour and mediocre infantry. The Turks are Muslim, with their capital at Iconium. With their starting position, it is highly advised that they ally with Egypt, so as to prevent the European Crusaders from creating a permanent foothold in the area, and also to fight off attacks from the Mongols and Timurids.
- The Papal States: The Papacy possesses strong militia, Swiss Guard and Papal guard units, but has little cavalry. This Catholic faction rules Rome, the home to the Pope and the Vatican. Because the Papal States are under the direct control of the Pope, they have a strong influence over other Catholic nations. The Papacy cannot be destroyed, though it's regions may all be taken and it's armies destroyed. Regardless of what faith your faction is, one is highly advised not to attack the Papal States unless it is absolutely necessary or you are in a strong enough position. For when you do, they will ensure that all loyal Catholic nations respond to their plight, and, if your faction is Catholic, it will result in your immediate excommunication.
- Mongols: Representing the Mongolian invasion, the Golden Horde and the Ilkhanate, the Mongols have incredibly strong cavalry and archers but very limited weak infantry. They lack late period gunpowder technology. They are nomadic, arriving in waves from any far eastern provinces from Baghdad to Sarkel during early 13th century; as the Mongols did historically. As such, the first nations to come into contact with them are the Turks, Egypt, the Byzantine Empire and Russia.
- Timurids: The Timurid nomads possess the strongest and most expensive single regiments in the game, such as war elephants, elephant artillery, monster bombards and rockets, although they lack any good infantry units. Timur, a mighty warlord, arrived on the eastern borders of European maps, bringing with him a legacy of conquest and destruction. The Timurid armies arrive in the year 1370, from the Middle East. The Timurids are Muslim. Depending on the game progression they could run into the Turks, Egypt or Russia. Ironically, the Mongols and the Timurids can both exist on the Campaign Map, although historically this was not the case.
- Aztecs: The armies of the Central American Aztec Empire have no armour, cavalry or weapon technology, but can access excellent, much-feared melee shock troops. They don't have any naval technology despite having huge hordes and a large economy.They don't appear on the map until later ship building technology is available. The Aztecs are pagan. Depending on the game progression any Faction can 'discover' the New World, although those factions with a good foothold of Western Europe and Northern Africa have more chance of doing this.
- Saxons: The rulers of England prior to the Norman conquest in 1066, the Anglo-Saxons appear only in the historical scenario depicting the Battle of Hastings and the game's tutorial. They have very strong spearmen and shock infantry. The Anglo-Saxons are Catholic, with London as their capital. They do not appear in the main campaign.