As its name directly states, Ice Castle takes place in an icy castle. Most of the area is empty except for some Peg Boards covered in ice, which cause Donkey Kong (or Diddy Kong in Diddy Mode) to slip. Other obstacles include crates, spikes, switches, Handle Pegs, tires, Booster Barrels, rocks, and barrels. There are a few Kritters which appear in the level, some of why try to attack the Kongs by throwing rocks at them. In the background, purple aurora lights are shown in the sky.
At the start of the level, Donkey Kong must climb a set of Icy Peg Boards above. There are three of them in each of the four rows. A banana is on each Icy Peg Board of the second and third rows. The Kong can charge into some crates above to reveal a fifth row of Icy Peg Boards. Donkey Kong must then climb up four more small Icy Peg Boards and jump to two pegs on the right. Donkey Kong must hold on these pegs and charge into a wooden crate below to uncover a blue Switch Peg. There are spikes on the floor beneath the Switch Peg. Donkey Kong must pull the Switch Peg to make three regular Peg Boards appear. He must climb them and then jump onto an icy platform to the right. Donkey Kong must avoid walking into some spikes to the right. Donkey Kong must spin the Handle Peg counterclockwise so that it moves left toward a tire. When it reaches the tire, Donkey Kong must jump onto an Icy Peg Board above and then on another platform to continue into the second section.
In the second section, Donkey Kong starts out on another icy platform with a Banana Bunch at the very right. He must climb from a pathway of pegs, although a nearby Kritter tries to throw rocks into Donkey Kong. He must go left to pick up a rock and throw it at Kritter to defeat it. Donkey Kong can optionally throw another rock in the air to hit a Question Barrel that makes more Peg Boards appear; they can help him reach Icy Peg Boards that help him reach Booster Barrel that can fly him to many bananas. After defeating the first Kritter, Donkey Kong must go right and go beneath an icy column floating in the air. Donkey Kong encounters another Kritter, which is above him, also trying to throw rocks at him. Like the previous Kritter, Donkey Kong must also throw a rock at the second Kritter, and he must go under another floating ice column to encounter the third Kritter. After defeating it with a rock, Donkey Kong can continue up the pegs above and jump onto an icy platform to the right to access the third and final section.
In the third section, Donkey Kong must climb from five Icy Peg Boards attached together, then climb up four more Icy Peg Boards that are vertically attached together. This section features many tires that appear in the corner. When Donkey Kong gets to the top, he encounters a Kritter on a Peg Board above him and another on the Peg Board to the left. Neither of them throw rocks at Donkey Kong, unlike the previous section. There is a blue Peg Board with four bananas to the left of the lower Kritter. Donkey Kong must charge into either Kritter, jump onto its Peg Board, and then to three more Icy Peg Boards above. As he goes up, Donkey Kong can optionally jump to an ice platform on the left to obtain a Banana Bunch. He must jump to two Icy Peg Boards and then to two regular Peg Boards. Lastly, Donkey Kong must jump from two more pairs of Icy Peg Boards to the left, then to one more pair on the right. From there, Donkey Kong can jump onto the platform with the Exit sign, which ends the level.