Three Houses is set on the continent of Fódlan, divided between three rival nations now at peace, connected through the Garegg Mach Monastery. Taking the role of a former mercenary and new tutor at Garegg Mach, the player must choose a nation to support and guide them through a series of battles. The game carries over the turn-based tactical gameplay of earlier Fire Emblem titles, while incorporating social simulation and time management elements.
The game's production was challenging for Intelligent Systems, who attributed its success to Koei Tecmo Games, who had previously partnered with the company for Fire Emblem Warriors. The staff wanted something entirely new for the series' debut on high-definition home consoles, birthing the school life mechanics and expansions to battle. Chinatsu Kurahana was responsible for creating the character designs and illustrations as the main character designer. The game's school system and a time skip later in the story took inspiration from Fire Emblem: Genealogy of the Holy War.