30 years prior to the story, famous artist Ichirō Mamiya hid several precious frescos in his huge mansion before he mysteriously disappeared. In the present day, a team of five treasure seekers seek to recover the paintings from the abandoned, dilapidated mansion. Upon entering, they are trapped inside by the ghost of an unknown woman, who threatens to kill all trespassers. The team decides to split up and find a way out, but the mansion is both in danger of collasping and is occupied by countless monsters.

The team discovers that the ghost is that of Lady Mamiya, Ichirō's wife. It is revealed that 30 years previously, Mamiya's two-year old son had fallen in the house's incinerator and was burnt alive, and Mamiya attempted to provide playmates for her son by killing several other children. She committed suicide shortly after and her ghost, unable to forgive herself, became trapped in the mansion. The team arrives in the main chamber and confronts Mamiya in a final battle.

The characters have names in kanji and katakana. Within the video game the names are in hiragana.

• Kazuo Hoshino (星野 和夫, Hoshino Kazuo, かずお Kazuo): Kazuo is the team leader, and producer of the documentary. He wields the lighter, a very important item which can be used to burn down ropes and attack enemies. He has the highest HP. In the movie, his wife died prior to his exploration of the mansion. He is played by Shingo Yamashiro in the film.
• Ryō Taguchi (田口 亮, Taguchi Ryō, たぐち Taguchi): Taguchi is a camera man. He takes photographs of the frescoes with his camera, which can also decode hidden messages within the frescoes. The camera can also be used to inflict damage to some enemies. In addition to having the second highest HP, he has the highest defense.
• Akiko Hayakawa (早川 秋子, Hayakawa Akiko, あきこ Akiko): Akiko is love interest of Kazuo in the movie and can heal team members with her first aid kit. She is the weakest member of the team. She is played by Nobuko Miyamoto in the film.
• Asuka (アスカ, あすか Asuka): An art restorer in the movie. Using her vacuum cleaner, Asuka can clean dirty frescoes and remove broken glass. She is the second strongest female character.
• Emi Hoshino (星野 エミ, Hoshino Emi, えみ Emi): She is Kazuo's daughter. In the game, her character uses a key which can open locked doors in the mansion. She is the strongest female character, as well as the lightest of the team. She is played by Nokko in the film.
• Lady Mamiya (間宮夫人, Mamiya Fujin, まみや ふじん): The wife of Ichirō and the main antagonist of the game. After her child fell into the mansion's furnace and burned to death, Mamiya went insane, and kidnapped other children and threw them in the furnace so her child would have "playmates" in the next life before committing suicide. She came back as a ghost to haunt the mansion. She has two forms in the game.
• Ichirō Mamiya (間宮 一郎, Mamiya Ichirō, まみや いちろう): Mamiya's husband, as well as a famous artist/painter. He has left clues scattered around the house in addition to his diary.
• Ken'ichi Yamamura (山村 健一, Yamamura Ken'ichi, やまむら Yamamura): A mysterious old man who operates a gas station in the movie. He gives the team aid in the later parts of the game. In-game hints suggest that Yamamura and Ichirō are the same person. He is played by Tsutomu Yamazaki in the film.

In 2010, UGO included Sweet Home on the list of 11 best survival horror games.

Though it was a role-playing video game, Sweet Home served as the main inspiration for the seminal survival horror game Resident Evil, which was originally intended to be a remake of Sweet Home. The first Resident Evil borrowed many elements from Sweet Home, including the mansion setting, the puzzles, the item inventory management, the emphasis on survival, and even the "door" loading screen. Other influences include solving a variety of puzzles using items stored in a limited inventory, while battling or escaping from horrifying creatures, which could lead to permanent death for any of the characters, thus creating tension and an emphasis on survival.

It was also the first attempt at creating a "scary" and frightening atmosphere within a game, through its "gruesome" story, ambient and tense orchestration, gory presentation, and "creepy" cutscenes. The game's creators attempted at creating a scary and frightening storyline within a video game, mainly told through diary entries left behind 50 years before the events of the game.Resident Evil also borrowed various other elements from the game, including the use of scattered notes as storytelling mechanics, multiple endings depending on how many characters survive, backtracking to previous locations in order to solve puzzles later on, the use of save rooms to store items when the player's inventory is full, the use of death animations, dual character paths, limited item management, individual character items such as a lockpick or lighter, story told through diary entries and frescos, emphasis on atmosphere, and brutal horrific imagery. The latter prevented its release in the Western world, though its influence would be felt through Resident Evil.