Most cars in Forza 2 can be visually customized with both aerodynamic parts as well as graphics. 1,000 layers of graphics can be created with the livery editor to draw shapes, letters and pictures onto a car. According to the developer, it is preventing possible copyright conflicts, also reducing loads in online races. Paint schemes can be auctioned online to other players for in-game credits. Many players reproduced paint schemes appeared in real world, or creating Itashas through this system.
The game supports split-screen, System Link and Xbox Live multiplayer gaming. Split-screen allows two player head-to-head racing, while both System Link and Xbox Live allow up to eight players to participate in a single race. Using Xbox Live 'Silver', players can also buy in-game cars through the game's Auction House. A 'Gold' account is needed to sell and 'gift' cars.
Forza Motorsport 2 concentrates on circuit racing; point to point races which were featured in the original Forza Motorsport have been removed. Real world tracks Road Atlanta, Silverstone, Laguna Seca, Tsukuba, Mugello Circuit, Sebring International Raceway, Suzuka Circuit, and Nürburgring Nordschleife are licensed and included. Forza 2 is also one of the first racing games to prominently feature cars from the American Le Mans Series in both the game and downloadable content.
The damage and physics in the game have been revamped over the previous game, allowing for multiple settings: "simulation," which is the most severe, allowing for damage that can take a car out of commission; "limited," which scales down the severity of impact of crashes; and "cosmetic," where the damage is merely visual. The damage ratings for each part of the vehicle can be seen on the HUD (heads up display) accessed from the in-game menu.
Professional racers playtested the wheel to aid the development in trying to achieve realistic features and settings. Forza Motorsport 2 features force feedback with the use of the Xbox 360 Wireless Racing Wheel.
Forza 2 runs at 60 frames per second in 720p resolution (HD), with replays running at 30 frames per second to accommodate additional after-effects.