Chao start life in an egg state. There are many different colors of eggs, reflecting the type of Chao that will hatch from them. As they grow up, they may be trained with different attributes, abilities, and personalities. By giving a Chao a "small animal" or a "chaos drive", it will acquire certain characteristics. Besides a physical change to the Chao, this will also modify the Chao's stats based on the type of animal or power drive given. A Chao gains an alignment depending on how it is raised. This may be a "hero", "dark" or "neutral" alignment.
Every Chao lives in a Chao Garden. Each garden is unique, though they all have these things in common: areas for Chao to swim, trees that grow nuts and fruits to feed the Chao, and a VMU/GBA Transporter. Chao can compete with each other in competitions such as races and karate, with outcomes largely determined by a Chao's stats. They will eventually gain the ability to reproduce. They are genderless, and therefore can breed with any other adult Chao. Eventually the Chao will enter a cocoon and be reborn as a new egg, or it will die. This depends on whether the player has taken adequate care of it during its lifetime.