Wonder Boy III: The Dragon's Trap was developed by Westone and was published by Sega; it is the sequel to Wonder Boy in Monster Land. It was first released for the Sega Master System in 1989 in North America and Europe. The game was then ported to the PC Engine in Japan April 19, 1991 (1991-04-19) under the title Adventure Island (not to be confused with the Adventure Island series of games for the Nintendo Entertainment System); it was released for the TurboGrafx-16 that same year by NEC under the title Dragon's Curse. Westone allowed Hudson Soft to publish the game provided they made no reference to the Wonder Boy series. Sega then released the game for the Game Gear in 1992 in Europe under the game's original title and in Japan under the title Monster World II: Dragon no Wana. In 1993, Tec Toy released the game in Brazil for the Master System under the title Turma da Mônica em o Resgate. Tec Toy replaced the sprites with characters from Brazilian comic book series Monica's Gang (Turma da Mônica), so instead of the player character turning into different creatures, he gets turned into different characters from the comics, relaying between them in order to rescue Monica, who disappeared after the previous game. In 2007, Sega released the game in Japan for the PlayStation 2 as part of a compilation of all the Wonder Boy games titled Sega Ages 2500 Vol. 29: Monster World Complete Collection. During the same year, Dragon's Curse/Adventure Island was released for the Wii's Virtual Console service worldwide. The Master System version of Wonder Boy III: The Dragon's Trap was released in Europe on September 10, 2009 (2009-09-10) and in North America on November 9, 2009 (2009-11-09).

Wonder Boy III: The Dragon's Trap received coverage in the September 1989 issue of Electronic Gaming Monthly, where they provided a brief overview of the game and a summary of the events in Wonder Boy in Monster Land leading up to the game's plot. Two months later, in its December 1989 issue in its "Best and Worst of 1989", the game won an award for "Best Game of the Year" for the Sega Master System.GamePro gave a brief overview of the game in its September–October 1989 issue, adding that "it's truly an adventure worthy of Wonder Boy". It received extensive coverage in both the January and February 1990 issues of VideoGames & Computer Entertainment, featuring an overview and a walkthrough of the game. The magazine praised the game for its challenge and overall look, which it says "will have you manipulating your control pad for days on end".

Various UK-based video gaming magazines gave Wonder Boy III: The Dragon's Trap significant coverage. The Games Machine complimented the game's colorful backgrounds and sprites with "the [Wonder] Boy himself being particularly well-drawn", while they criticized the weak animation on some of the characters as well as its choppy scrolling. They called it one of the best games by Sega but complained that it was expensive, saying "do you really want to spend 28 quid on it?" The magazine's successor, Raze, reviewed the PC Engine version titled Adventure Island. The magazine praised the game's simplistic and addicting platforming gameplay and its smooth-scrolling graphics, though they said they were "a little blocky". They noted that the game had excellent music which was "worth listening through some headphones".Zero, along with praising the game's graphics and music, called it "enormously addictive"; the review said the ability to transform into different forms and hence being able to progress into new areas kept the game fresh.

UK magazines Computer and Video Games and its spin-off Mean Machines – in the latter's premiere issue – gave the game positive reviews. Computer and Video Games praised the animation in particular and called it the best game of its type on that platform, using phrases such as "familiar air of polish and ingenuity" and "piles of addiction guaranteed".Mean Machines' Matt Regan said it "ranks as one of the greatest Sega Master System games ever!"; he compared the gameplay to the Mario series of video games and praised the game's depth, saying that "there's always something new to discover, be it a key to a previously locked door or even a secret room!" Julian Rignall praised the game's graphics and the huge world players can explore, which he says contributes to the game's addictiveness. He said that "the combination of adventuring, shooting and platform action results in one of the best games of its type available on any console". Collectively, they praised the game overall presentation and graphics, saying that the sprites complement the background. While they additionally praised its playability for being "accessible from the word go" and longevity, they criticized its sound, saying that it "could have been much better".

German magazine Video Games gave Wonder Boy III: The Dragon's Trap a positive review, saying that the game gave more weight to strategy and tactics, that it "stands out clearly from the two predecessors", and that its graphics became less childlike but more "spectacular". The review continued, saying that its gameplay is a good example about that makes action-adventure games addicting to play. It complimented the game's depth and wide array of equipment, saying that it "provides an additional touch, which makes [it] the best thought-out game [at the time]."

Upon the release of the TurboGrafx-16 version Dragon's Curse to the Virtual Console in 2007, IGN's Lucas Thomas reviewed the game, comparing the opening sequence of the game to the opening sequence of Castlevania: Symphony of the Night; he proceeded to add that the game parallels with games in the Castlevania series, calling the game "a straightforward and simple 'Metroidvania' adventure" but with "several layers of unexpected depth". Thomas noted the game's popularity among fans and that is plays almost exactly the same as the Master System version despite graphics and sound improvements; at the time, there were no Master System games on the Virtual Console. He praised the game's rich sound, gameplay depth, and "colorful and cartoony" graphics, which "was perfectly suited to the TurboGrafx platform".

IGN's Travis Fahs, in discussing the SMS version, offered another opinion, praising the game as "not only the crowning achievement of the series, but perhaps one the best games of the 8-bit era," drawing comparisons to both Mario and Zelda. Thomas again reviewed the Master System version of Wonder Boy III: The Dragon's Trap when it was released two years later for the Virtual Console. In this review, he compares the gameplay to Metroid – more specifically the need to gather additional equipment and abilities to advance in the game. While he acknowledged that this version from one of the best Master System games as well as for any 8-bit system, he felt that the Master System's Virtual Console release had a reduced appeal. He said that the TurboGrafx-16 version Dragon's Curse had already been out for two years and that there was no difference in gameplay between the two versions, but there were improvements in graphics and sound in the TurboGrafx-16 version because of the system's superior capabilities. He also noted that the Master System version suffers from sprite flickering – something the TurboGrafx-16 version did not have. Despite the small differences in the two versions, he decided to give the Master System version the same rating as the TurboGrafx-16 version.

Allgame's review of the Master System version praised the non-linear gameplay and the ability to change into different forms, saying that it "keeps things interesting and fun" and "keeps the game from getting repetitive". It lauded its visuals and sound effects, saying the "graphics are very colorful and have a cartoon look to them". Criticisms included slippery controls and the difficulty of getting into doors; it said the controls kept the game from obtaining a perfect rating, and the gameplay was still not as good as Wonder Boy in Monster Land. The editing staff from magazine Retro Gamer listed Wonder Boy III: The Dragon's Trap as one of the "Perfect Ten Games" for the Master System, calling it "the best in a long and highly convoluted myriad of multi-titled games" and "a great adventure that every Master System fan needs to own". The review praised the game's brisk pace and gameplay, despite the length of the game.