Arcade mode is an alternative to the story mode. In arcade mode, one or two players run through the streets of Metro City, fighting various punks along the way. There is minimal story and no side-missions to complete, you've got to just fight -think of it as a 3D version of the original game. There are four playable characters to choose from -Kyle, Cody, Guy and Haggar. Cody, Guy and Haggar have to be unlocked (see the secrets page). Kyle's moves list in this mode has been greatly reduced compared to what he can do in story mode.
Other changes in arcade mode include the removal of the instinct gauge, and the addition of special attacks. By pressing the two attack buttons together, your character will perform a powerful special move, but your life gauge will decrease if the move hits any enemies. There are four levels, each one having several stages in it. In the last stage of a level you will have to face a boss, such as Handsome Bob or Lou the Skin.
The arcade mode is quite a challenge as you only have three lives to complete it with, and there are no continues. Playing alone can be a frustrating experience due to the sheer amount of enemies the game will throw at you, but it gets a bit better (and fairer) when two people are playing. Completing arcade mode just gets you a "congratulations" screen, as seen above.